Conventional Underwriting Guidelines
Conventional Underwriting Guidelines Conventional Underwriting Guidelines | Table of Contents Table of Contents MiMutual Underwriting ___________________________________________________________________ 11 Philosophy ____________________________________________________________________________________ 11 Program Description ____________________________________________________________________________ 12 Requirements and Restrictions _____________________________________________________________ 13 Loan Requirements _____________________________________________________________________________ 13 Loan Restrictions (Ineligible) _____________________________________________________________________ 13 Debt-to-Income Ratios:__________________________________________________________________________ 13 Maximum LTV / CLTV / HCLTV ____________________________________________________________________ 13 Qualified Mortgages with Rebuttable Presumption ___________________________________________________ 14 Residual Income Evaluation Table __________________________________________________________________________ 14 Collateral Requirements __________________________________________________________________ 15 Eligible Collateral ______________________________________________________________________________ 15 Ineligible Collateral _____________________________________________________________________________ 15 Appraisals ____________________________________________________________________________________ 16 Appraiser Independence _________________________________________________________________________________ Approved Appraiser List __________________________________________________________________________________ Uniform Appraisal Dataset (UAD) __________________________________________________________________________ Appraisal Order Process __________________________________________________________________________________ Revisions Due to Sales Contract Amendments ________________________________________________________________ Appraisal Delivery Requirements __________________________________________________________________________ Appraisal Report Forms __________________________________________________________________________________ Fannie Mae Property Inspection Waiver (PIW) _______________________________________________________________ Value Reconsideration Request ____________________________________________________________________________ Appraisal Portability _____________________________________________________________________________________ Appraisal Validity Period _________________________________________________________________________________ 16 16 16 17 17 17 18 19 19 19 19 Modular Home Eligibility ________________________________________________________________________ 20 FEMA Declared Disaster Area Policy _______________________________________________________________ 20 Repair Escrows ________________________________________________________________________________ 20 Minimum Square Footage _______________________________________________________________________ 21 Acreage ______________________________________________________________________________________ 21 Age-Restricted Communities _____________________________________________________________________ 21 Estimated Remaining Economic Life _______________________________________________________________ 21 Commercial/Industrial Zoning ____________________________________________________________________ 21 Properties Listed For Sale within the Last 6 Months (Refinances) ________________________________________ 21 Cash Out Transactions ___________________________________________________________________________________ 21 Rate/Term Transactions__________________________________________________________________________________ 21 Properties Located on a Repaired Sinkhole __________________________________________________________ 22 Condominiums / PUDs ____________________________________________________________________ 23 Property Determination _________________________________________________________________________ 23 Condominiums _________________________________________________________________________________________ PUDs _________________________________________________________________________________________________ Detached PUDs ______________________________________________________________________________________ Attached PUDs_______________________________________________________________________________________ 23 23 23 23 Conventional HOA Questionnaire _________________________________________________________________ 23 Project Approval _______________________________________________________________________________ 23 04.03.2015 2 Conventional Underwriting Guidelines | Table of Contents Insurance Requirements _________________________________________________________________________ 24 Hazard/Liability Insurance (Project Approval) ________________________________________________________________ HO-6 (Loan Level) _______________________________________________________________________________________ Fidelity Bond / Fidelity Insurance (Project Approval) ___________________________________________________________ Flood (Project and Loan Level) ____________________________________________________________________________ 24 24 25 25 Site Condominiums _____________________________________________________________________________ 26 Project Types __________________________________________________________________________________ 27 Ineligible Project Types __________________________________________________________________________________ 27 Ineligible Project Characteristics __________________________________________________________________ 28 Calculation of Commercial Space __________________________________________________________________________ 29 Max LTV on Florida Condos ______________________________________________________________________ 30 Project Review Methods_________________________________________________________________________ 30 Limited Review _________________________________________________________________________________________ Limited Review of Attached Units in Established Projects ____________________________________________________ Documentation Requirements __________________________________________________________________________ Full Review (using CPM) __________________________________________________________________________________ Eligibility Requirements _______________________________________________________________________________ Restrictions for Units in Florida _________________________________________________________________________ Documentation Requirements __________________________________________________________________________ 31 31 31 31 32 34 34 Credit__________________________________________________________________________________ 35 Documentation Requirements ____________________________________________________________________ 35 Verification of Institutional Mortgage History ________________________________________________________________ Verification of Rental Payment History ______________________________________________________________________ Land Contract/Contract for Deed __________________________________________________________________________ Lease with Option to Purchase ____________________________________________________________________________ 35 35 35 35 Credit Reports _________________________________________________________________________________ 35 Housing Payment History ________________________________________________________________________ 36 Land Contracts_________________________________________________________________________________ 36 Bankruptcy ___________________________________________________________________________________ 37 Chapter 7 Bankruptcy ___________________________________________________________________________________ Chapter 13 Bankruptcy __________________________________________________________________________________ Discharged Chapter 13 ________________________________________________________________________________ Dismissed Chapter 13 _________________________________________________________________________________ Exceptions for Extenuating Circumstances ________________________________________________________________ Multiple Bankruptcy Filings _______________________________________________________________________________ Exceptions for Extenuating Circumstances ________________________________________________________________ 37 37 37 37 37 37 37 Foreclosure ___________________________________________________________________________________ 38 Exceptions for Extenuating Circumstances ___________________________________________________________________ 38 Foreclosure and Bankruptcy on the Same Mortgage __________________________________________________ 38 Deed-in-Lieu of Foreclosure, Preforeclosure Sale, and Charged-Off Mortgages _____________________________ 38 Exceptions for Extenuating Circumstances ___________________________________________________________________ 38 Hardship Modifications _________________________________________________________________________ 39 Purchases _____________________________________________________________________________________________ 39 Refinances ____________________________________________________________________________________________ 39 Extenuating Circumstances for Derogatory Credit ____________________________________________________ 39 Requirements for Reestablishing Credit ____________________________________________________________ 39 Consumer Credit Counseling _____________________________________________________________________ 39 Credit Score ___________________________________________________________________________________ 40 Valid Credit Score ______________________________________________________________________________ 40 Borrowers/Co-Borrowers ________________________________________________________________________ 40 Occupying _____________________________________________________________________________________________ 40 Non-Occupying Co-Borrowers _____________________________________________________________________________ 40 Disputed Accounts _____________________________________________________________________________ 40 Credit Inquiries within 90 days of Report Date _______________________________________________________ 41 04.03.2015 3 Conventional Underwriting Guidelines | Table of Contents Accounts with No Monthly Payment Reported _______________________________________________________ 41 HELOCs _______________________________________________________________________________________________ 41 Open 30-Day Charge Accounts ____________________________________________________________________ 41 Contingent Liability _____________________________________________________________________________ 41 Joint/Co-Signed Debts by Applicants _______________________________________________________________ 41 Business Debt in Borrower’s Name ________________________________________________________________ 42 Installment Debt _______________________________________________________________________________ 42 Projected Obligations ___________________________________________________________________________ 42 Obligations Not Considered Debt __________________________________________________________________ 43 Calculating Housing Expense Ratio ________________________________________________________________ 43 Payoff or Pay Down of Debt for Qualification ________________________________________________________ 43 Past-Due, Collections, and Charge-Off Accounts ______________________________________________________ 44 Judgments, Garnishments, and Liens _______________________________________________________________ 44 Employment/Income _____________________________________________________________________ 45 Documentation Requirements ____________________________________________________________________ 45 Hourly or Salaried Employees_____________________________________________________________________ 45 Overtime and Bonus Income _____________________________________________________________________ 45 Second Jobs/Part-Time Income ___________________________________________________________________ 45 Seasonal Employment __________________________________________________________________________ 46 Unemployment Benefits _________________________________________________________________________ 46 Union Employees ______________________________________________________________________________ 46 Commission Income ____________________________________________________________________________ 46 1099 Employees _______________________________________________________________________________ 46 Unreimbursed Business Expenses _________________________________________________________________ 47 Automobile Allowances _________________________________________________________________________ 47 Self-Employed _________________________________________________________________________________ 47 Alimony, Child Support, or Separate Maintenance ____________________________________________________ 48 Social Security Income __________________________________________________________________________ 49 Pension/Retirement Income _____________________________________________________________________ 49 Military Income, Entitlements, and Reserve Duty Income ______________________________________________ 50 Foster Care Income _____________________________________________________________________________ 50 Non-Taxable Income ____________________________________________________________________________ 50 Short Term Disability / Workman’s Comp ___________________________________________________________ 50 Projected Income ______________________________________________________________________________ 50 Foreign Income ________________________________________________________________________________ 50 Maternity Leave _______________________________________________________________________________ 51 Rental Income _________________________________________________________________________________ 52 Rental Income from the Subject Property ___________________________________________________________________ When the Subject Property is the Primary Residence ________________________________________________________ When the Subject Property is an Investment Property _______________________________________________________ Rental Income from Property Other Than the Subject __________________________________________________________ Conversion of Principal Residence Requirements _____________________________________________________________ Partial or No Rental History on Tax Returns (Qualifying Exceptions)_______________________________________________ Offsetting Monthly Obligations for Rental Property Reported through a Partnership or an S Corporation ________________ 52 52 52 52 53 53 54 Timing of Tax Returns ___________________________________________________________________________ 55 Additional Documentation Requirements ___________________________________________________________________ 55 Use of IRS Forms to Obtain Federal Income Tax Information ____________________________________________________ 55 Assets _________________________________________________________________________________ 56 Borrower’s Own Funds to Close ___________________________________________________________________ 56 Bank Statements _______________________________________________________________________________________ 56 04.03.2015 4 Conventional Underwriting Guidelines | Table of Contents Verification of Deposit ___________________________________________________________________________________ 56 HUD-1 from Sale of Current Residence ______________________________________________________________________ 56 Retirement Accounts ___________________________________________________________________________ 56 Large Deposits _________________________________________________________________________________ 57 Refinance Transactions __________________________________________________________________________________ 57 Purchase Transactions ___________________________________________________________________________________ 57 Cash Back on Purchases _________________________________________________________________________ 57 Sale of Personal Property ________________________________________________________________________ 58 Minimum Reserve Requirements __________________________________________________________________ 58 Business Assets ________________________________________________________________________________ 58 Gift Funds ____________________________________________________________________________________ 59 Acceptable Donors ______________________________________________________________________________________ Gift Documentation _____________________________________________________________________________________ Verifying Donor Ability of Funds and Transfer of Gift Funds _____________________________________________________ Minimum Borrower Contribution Requirement from Borrower’s Own Funds _______________________________________ 59 59 59 60 Gift of Equity __________________________________________________________________________________ 60 Downpayment Assistance Programs _______________________________________________________________ 61 Collateralized Loans ____________________________________________________________________________ 61 Gift Funds/Grants by Charitable Organizations _______________________________________________________ 61 Donations from Entities _________________________________________________________________________ 62 Minimum Borrower Contribution Requirements ______________________________________________________________ 62 Subordinate Financing __________________________________________________________________________ 63 Acceptable Subordinate Financing Types ____________________________________________________________________ 63 Unacceptable Subordinate Financing Terms _________________________________________________________________ 63 Eligible Variable Payment Terms for Subordinate Financing _____________________________________________________ 63 Refinance Transactions ___________________________________________________________________ 64 Cash Out Refinances ____________________________________________________________________________ 64 Additional Underwriting and Eligibility Criteria _______________________________________________________________ 64 Rate & Term Refinances/Limited Cash Out __________________________________________________________ 65 Existing Debt ___________________________________________________________________________________________ Refinances to Buy Out an Owner’s Interest __________________________________________________________________ Additional Underwriting and Eligibility Criteria _______________________________________________________________ Loan Seasoning _________________________________________________________________________________________ Property Seasoning _____________________________________________________________________________________ 65 65 65 66 66 Property Seasoning (Assuming Continuity of Obligation Has Been Met) ___________________________________ 66 No Cash Out/Limited Cash Out ____________________________________________________________________________ 66 Cash-Out ______________________________________________________________________________________________ 66 Mortgage Payoffs ______________________________________________________________________________ 66 Texas Refinances _______________________________________________________________________________ 67 Including Fees Paid Outside of Closing in the Loan Amount _____________________________________________________ 67 Principal Curtailments/Reductions _________________________________________________________________________ 67 Increasing Payoff Amounts for the Purpose of Reducing Cash Back _______________________________________________ 67 Delayed Financing Exception _____________________________________________________________________ 68 Continuity of Obligation _________________________________________________________________________ 69 Requirements for Continuity of Obligation ___________________________________________________________________ 69 Permissible Exceptions to Continuity of Obligation ____________________________________________________________ 69 All Other Refinance Transactions – Limited Eligibility __________________________________________________________ 70 Subordinate Financing __________________________________________________________________________ 70 Defining Refinance Transactions Based on Subordinate Lien Payoff _______________________________________________ 70 Cash Out and Principal Curtailments _______________________________________________________________ 71 04.03.2015 5 Conventional Underwriting Guidelines | Table of Contents Purchase Transactions ____________________________________________________________________ 72 Residential Purchase Agreement __________________________________________________________________ 72 Earnest Money Deposit (EMD) ____________________________________________________________________ 72 Short Sales ____________________________________________________________________________________ 72 Interested Party Contributions ____________________________________________________________________ 72 Principal Residence or Second Home _______________________________________________________________________ 72 Investment Property ____________________________________________________________________________________ 72 Property Seasoning _____________________________________________________________________________ 73 Personal Property ______________________________________________________________________________ 73 Identity of Interest Transactions/Non-Arm’s Length Transactions________________________________________ 73 Borrower Acting as an Interested Party _____________________________________________________________________ 73 Determining Property Taxes on New Construction Dwellings ___________________________________________ 73 Seller Utilizing a Relocation Company ______________________________________________________________ 74 Relocation Company Takes Power of Attorney _______________________________________________________________ 74 Double Escrow _________________________________________________________________________________________ 74 Relocation Company Acts as Seller without Taking Title ________________________________________________________ 74 Expanded LTV/CLTV/HCLTV ________________________________________________________________ 75 Purchase Transactions __________________________________________________________________________ 75 Limited Cash Out Refinance Transactions ___________________________________________________________ 76 Private Mortgage Insurance (PMI) __________________________________________________________ 77 Minimum Credit Score __________________________________________________________________________ 77 Transaction Types ______________________________________________________________________________ 77 Coverage Options ______________________________________________________________________________ 77 Points and Fees Restriction ______________________________________________________________________ 77 General Provisions _______________________________________________________________________ 78 Documentation Requirements ____________________________________________________________________ 78 Citizenship ____________________________________________________________________________________ 78 Permanent Resident Aliens _______________________________________________________________________________ Non-Permanent Resident Aliens ___________________________________________________________________________ Additional Immigration Status _____________________________________________________________________________ North American Free Trade Agreement (NAFTA) Workers ______________________________________________________ Diplomatic Immunity ____________________________________________________________________________________ 78 78 79 79 79 Social Security Number __________________________________________________________________________ 79 Translated Documents __________________________________________________________________________ 79 Legal Name ___________________________________________________________________________________ 80 Married Names ________________________________________________________________________________________ 80 Maximum Number of Financed Properties/Multiple Properties _________________________________________ 80 Maximum Number of Borrowers Allowed ___________________________________________________________ 80 Age of Borrower _______________________________________________________________________________ 80 Power of Attorney _____________________________________________________________________________ 81 Rescission ____________________________________________________________________________________ 81 Tax and Insurance Escrows _______________________________________________________________________ 81 Partial Escrow Policy ____________________________________________________________________________________ 81 Flood Insurance ________________________________________________________________________________ 81 Hazard Insurance_______________________________________________________________________________ 82 Non-Homestead Property Taxes __________________________________________________________________ 82 Title Companies/Settlement Agents _______________________________________________________________ 82 04.03.2015 6 Conventional Underwriting Guidelines | Table of Contents Title Requirements _____________________________________________________________________________ 82 Redemption Periods on Title ______________________________________________________________________________ 82 Schedule B ____________________________________________________________________________________________ 82 Delinquent Property Taxes _______________________________________________________________________ 82 Paying Debt at Closing __________________________________________________________________________ 83 Mortgage Payoffs ______________________________________________________________________________ 83 Verifications __________________________________________________________________________________ 83 Age of Documents ______________________________________________________________________________ 83 Non-Purchasing Spouse _________________________________________________________________________ 84 Electronic Signatures____________________________________________________________________________ 84 Ineligible Documents for eSignature ________________________________________________________________________ 84 Approved Vendors ______________________________________________________________________________________ 85 Trusts ________________________________________________________________________________________ 85 Eligible Borrowers ______________________________________________________________________________________ Eligible Properties ______________________________________________________________________________________ Required Documentation ________________________________________________________________________________ Exception for Trust Certificate Authorized States______________________________________________________________ Other Title and Closing Requirements ______________________________________________________________________ Ineligible ______________________________________________________________________________________________ 85 85 86 86 86 86 LDP/GSA Lists _________________________________________________________________________________ 87 Debt-To-Income Ratios __________________________________________________________________________ 87 Credit Card Financing ___________________________________________________________________________ 87 ARMs __________________________________________________________________________________ 88 Product Description ____________________________________________________________________________ 88 Index ________________________________________________________________________________________ 88 Margin _______________________________________________________________________________________ 88 Caps _________________________________________________________________________________________ 88 Qualifying Rate ________________________________________________________________________________ 88 5/1 __________________________________________________________________________________________________ 88 7/1 __________________________________________________________________________________________________ 88 Maximum Loan Amount _________________________________________________________________________ 88 Maximum LTV/CLTV/HCLTV Ratios ________________________________________________________________ 89 Financing Types ________________________________________________________________________________ 89 Purchase ______________________________________________________________________________________________ 89 Rate/Term Refinance (Limited Cash Out) ____________________________________________________________________ 89 Cash Out Refinance _____________________________________________________________________________________ 89 Property Types ________________________________________________________________________________ 89 Condominiums _________________________________________________________________________________________ 89 Appraisal Requirements _________________________________________________________________________ 89 High-Balance Loans ______________________________________________________________________ 90 Minimum / Maximum Loan Amounts ______________________________________________________________ 90 Minimum Credit Score __________________________________________________________________________ 90 Loan Amount and LTV Limitations _________________________________________________________________ 90 Available Terms ________________________________________________________________________________ 91 Maximum Debt-to-Income Ratio (DTI)______________________________________________________________ 91 Occupancy ____________________________________________________________________________________ 91 Property Types ________________________________________________________________________________ 91 Private Mortgage Insurance (PMI) _________________________________________________________________ 91 Assets________________________________________________________________________________________ 91 Minimum Borrower Investment (From Own Funds) ___________________________________________________________ 91 04.03.2015 7 Conventional Underwriting Guidelines | Table of Contents Gift Funds _____________________________________________________________________________________________ 91 Reserves ______________________________________________________________________________________________ 91 Appraisals ____________________________________________________________________________________ 91 Seller Contributions ____________________________________________________________________________ 91 DU Refi Plus™ ___________________________________________________________________________ 92 Available Terms ________________________________________________________________________________ 92 Maximum LTV/CLTV ____________________________________________________________________________ 92 Maximum Mortgage Amount _____________________________________________________________________ 92 Minimum Credit Score __________________________________________________________________________ 92 Qualifying Ratios _______________________________________________________________________________ 92 Credit ________________________________________________________________________________________ 92 Mortgage Payment History _______________________________________________________________________________ 92 Bankruptcy ____________________________________________________________________________________________ 92 Foreclosure ____________________________________________________________________________________________ 92 Occupancy ____________________________________________________________________________________ 93 Property Types ________________________________________________________________________________ 93 Benefit to Borrower ____________________________________________________________________________ 93 DU Findings ___________________________________________________________________________________ 93 Escrow Waivers ________________________________________________________________________________ 93 Credit Documentation Requirements ______________________________________________________________ 93 Income _______________________________________________________________________________________________ 93 Assets ________________________________________________________________________________________________ 94 Mortgage Insurance ____________________________________________________________________________ 94 Appraisal Requirements _________________________________________________________________________ 94 Subordinate Financing __________________________________________________________________________ 94 Additional Important Notes ______________________________________________________________________ 95 Jumbos ________________________________________________________________________________ 96 Available Products _____________________________________________________________________________ 96 Qualifying Rate ________________________________________________________________________________ 96 Eligible Property Types __________________________________________________________________________ 96 Occupancy ____________________________________________________________________________________ 96 Maximum Loan Amount _________________________________________________________________________ 96 Maximum DTI _________________________________________________________________________________ 96 Minimum Credit Score __________________________________________________________________________ 96 Max LTV/CLTV/HCLTV ___________________________________________________________________________ 97 ARM Specifics _________________________________________________________________________________ 98 Interest Rate Adjustment Caps ____________________________________________________________________________ Margin _______________________________________________________________________________________________ Index _________________________________________________________________________________________________ Interest Rate Floor ______________________________________________________________________________________ Change Dates __________________________________________________________________________________________ 98 98 98 98 98 Conversion Option _____________________________________________________________________________ 98 Assumption Feature ____________________________________________________________________________ 98 Documentation Requirements ____________________________________________________________________ 98 Borrowers ____________________________________________________________________________________ 99 Eligible _______________________________________________________________________________________________ 99 Ineligible ______________________________________________________________________________________________ 99 Multiple Properties Financed/Owned ______________________________________________________________ 99 Rate/Term Refinance Restrictions ________________________________________________________________ 100 Cash Out Refinance Restrictions _________________________________________________________________ 100 04.03.2015 8 Conventional Underwriting Guidelines | Table of Contents Inherited Properties ___________________________________________________________________________ 100 Delayed Purchase Refinances ____________________________________________________________________ 101 LTV/CLTV/HCLTV Calculation ____________________________________________________________________ 101 Purchases ____________________________________________________________________________________________ 101 Refinances: Rate/Term and Cash Out ______________________________________________________________________ 101 Delayed Purchase Refinance _____________________________________________________________________________ 101 Construction to Permanent Refinance Restrictions __________________________________________________ 102 Non-Arm’s Length Transactions __________________________________________________________________ 102 Secondary / Subordinate Financing _______________________________________________________________ 103 Interested Party Contributions ___________________________________________________________________ 103 Escrow Accounts ______________________________________________________________________________ 103 Credit Requirements ___________________________________________________________________________ 104 Adverse Credit ________________________________________________________________________________________ Housing Payment History _______________________________________________________________________________ Inquiries _____________________________________________________________________________________________ Age of Credit Report ___________________________________________________________________________________ Tradeline Requirements ________________________________________________________________________________ Authorized User Accounts _______________________________________________________________________________ Disputed Tradelines ____________________________________________________________________________________ Student Loans _________________________________________________________________________________________ Departure Residence Pending Sale ________________________________________________________________________ Departure Residence Subject to Guaranteed Buy-out with Corporation Relocation _________________________________ 104 104 104 104 104 105 105 105 105 105 Income Requirements __________________________________________________________________________ 106 Employees Paid via W2 / 1099 ___________________________________________________________________________ Alimony/Spousal Support _______________________________________________________________________________ Tax Returns ___________________________________________________________________________________________ Employment Income Sources ____________________________________________________________________________ Salaried ___________________________________________________________________________________________ Hourly and Variable Income ___________________________________________________________________________ Part Time Income ___________________________________________________________________________________ Commission ________________________________________________________________________________________ Overtime and Bonus _________________________________________________________________________________ Self-Employed Income Sources ___________________________________________________________________________ Sole Proprietorship __________________________________________________________________________________ Partnerships (General, Limited) / Limited Liability Companies / “S” Corporations / Corporations ____________________ Rental Income Sources _________________________________________________________________________________ All Properties _______________________________________________________________________________________ Departing Residence _________________________________________________________________________________ Retirement Income Sources _____________________________________________________________________________ Retirement Income (Pension, Annuity, IRA Distributions) / Asset Depletion or Dissipation _________________________ Social Security Income _______________________________________________________________________________ Other Income Sources __________________________________________________________________________________ Alimony, Separate Maintenance, and Child Support Income _________________________________________________ Capital Gains _______________________________________________________________________________________ Dividend/Interest ___________________________________________________________________________________ Stock Options & Restricted Stock Grants _________________________________________________________________ Note Income _______________________________________________________________________________________ Trust Income _______________________________________________________________________________________ Foreign Income _____________________________________________________________________________________ Non-Taxable Income (Including Child Support, Disability, Foster Care, Military, etc) ______________________________ Unacceptable Income Sources ___________________________________________________________________________ 107 107 107 107 107 108 108 108 108 109 109 109 109 109 110 110 110 110 111 111 111 111 111 111 112 112 112 112 Asset Requirements ___________________________________________________________________________ 113 Documentation Requirements ___________________________________________________________________________ Checking and Savings Accounts ________________________________________________________________________ Marketable Securities / Stock Accounts __________________________________________________________________ Retirement Accounts ________________________________________________________________________________ Business Funds _____________________________________________________________________________________ 04.03.2015 9 113 113 113 113 113 Conventional Underwriting Guidelines | Table of Contents Gift Funds _________________________________________________________________________________________ 114 Reserve Requirements __________________________________________________________________________________ 114 Collateral Requirements ________________________________________________________________________ 115 Appraisal Requirements_________________________________________________________________________________ 115 Eligible Collateral ______________________________________________________________________________________ 116 Ineligible Collateral ____________________________________________________________________________________ 116 FEMA Declared Disaster Area Policy ______________________________________________________________ 116 Power of Attorney ____________________________________________________________________________ 117 Requirements _________________________________________________________________________________________ 117 Restrictions on the Use of a Power of Attorney ______________________________________________________________ 117 Title Requirements ____________________________________________________________________________ 117 Automated Underwriting System __________________________________________________________ 118 Approve/Eligible Risk Classification _______________________________________________________________ 118 Approve/Ineligible Risk Classification _____________________________________________________________ 118 System Overrides and Manual Downgrades ________________________________________________________ 118 Previous Mortgage Foreclosure___________________________________________________________________________ 118 Delinquent Federal Debt ________________________________________________________________________________ 118 Upfront Disclosure Policy _______________________________________________________________________ 118 Underwriting Status/Decisions ____________________________________________________________ 119 Pre-Qualification ______________________________________________________________________________ 119 Incomplete __________________________________________________________________________________ 119 Submitted ___________________________________________________________________________________ 119 Suspended ___________________________________________________________________________________ 119 Approved with Conditions ______________________________________________________________________ 119 Withdrawn __________________________________________________________________________________ 119 Declined _____________________________________________________________________________________ 119 Clear to Close ________________________________________________________________________________ 119 04.03.2015 10 Conventional Underwriting Guidelines | Underwriting Philosophy & Program Description MiMutual Underwriting Philosophy MiMutual underwrites and purchases all types of residential mortgages. These programs and products can be found in our Product Matrices (located on MiMutual’s website) and on our daily rate sheet. The Product Matrices will reference specific product features and requirements (such as maximum Loan-to-Value ratios and minimum credit score requirements, if any). This guide is intended to address unique underwriting situations. MiMutual uses Automated Underwriting Systems (AUS). Generally, underwriters validate to the conditions set forth by the AUS. However, there are circumstances where underwriters will need to add conditions to the loan. These guidelines are meant to serve as a guide for obtaining adequate documentation to enable us to satisfy those conditions. MiMutual underwrites a borrower’s creditworthiness based solely on information that we believe is indicative of the applicant’s willingness and ability to pay the debt they would be incurring. We prudently underwrite to agency standards and guidelines. Due to a multitude of factors involved in a loan transaction, no set of guidelines can contemplate every potential situation. Therefore, each case is weighed individually on its own merits. MiMutual’s underwriting philosophy is to weigh all risk factors inherent in the loan file, giving consideration to the individual transaction, borrower profile, the level of documentation provided and the property used to collateralize the debt. Our commitment to fairness and equal opportunity is clear and unequivocal. The application of fair and consistent underwriting practices is mandated in the underwriting guidelines outlined in this guide. All loans considered for denial will be subject to a second level review prior to a final decision. As our guidelines and processes are impacted by external market conditions, it will be necessary for us to reevaluate the guidelines in this manual from time to time. Occasionally, revisions will be made. As applicable, corporate written notifications and updates will be provided to you and incorporated into these guidelines. Back to Top (Remainder of page intentionally left blank) 04.03.2015 11 Conventional Underwriting Guidelines | Underwriting Philosophy & Program Description Program Description These underwriting guidelines describe FNMA underwriting guidelines for one to four family conventional mortgages. This set of underwriting guidelines does not represent the entire FNMA underwriting manual The underwriting information contained in this section is intended for use in conjunction with FNMA Guidelines. Unless otherwise stated all FNMA loans must conform to applicable FNMA one-to-two family housing requirements as well as federal, state and local law compliance. MiMutual reserves the right to deny any loan which does not meet these guidelines/requirements. To the extent that any conflicts exist between the provisions set forth in FNMA guidelines and MiMutual’s guidelines described here, then MiMutual’s guidelines should be followed. In addition to program eligibility and prudent underwriting, MiMutual requires all loans to meet the Ability to Repay rules established by the Consumer Financial Protection Bureau (CFPB). The ATR Rule requires that a reasonable, good faith determination is made before or when the loan is consummated, and that the consumer has a reasonable ability to repay the loan. The eight underwriting factors established by the CFPB must be considered, and the loan must be documented accordingly. 1. The borrower’s current or reasonably expected income or assets; 2. The borrower’s current employment status; 3. The borrower’s monthly payment on the covered transaction; 4. The borrower’s monthly payment on any simultaneous loan; 5. The borrower’s monthly payment for mortgage-related obligations; 6. The borrower’s current debt obligations, alimony, and child support; 7. The borrower’s monthly debt-to-income ratio or residual income; and 8. The borrower’s credit history Additionally, MiMutual will only underwrite/close loans that are Qualified Mortgages (QMs) which meet the criteria for Safe Harbor. No risky features permitted (we do not currently offer loans with features the CFPB considers “risky”, so our products will not change) “Higher-Priced Mortgage Loans” (loans which, at the time the interest rate was set, the APR was 1.5% or more over the Average Prime Offer Rate (APOR)) are only permitted when the loan meets the criteria as outlined in the guidance for HPMLs All loans will be prudently underwritten by MiMutual and must be of sound investment quality. Loans having serious credit and/or property deficiencies may be denied at the option of MiMutual. Note: Guidance contained in this document assumes the loan received an Approve/Eligible recommendation. Manual underwrites are not permitted on Conventional loans. Back to Top 04.03.2015 12 Conventional Underwriting Guidelines | Requirements and Restrictions Requirements and Restrictions Loan Requirements 10, 15, 20, 25 and 30 year fixed rate terms available. 5/1 and 7/1 LIBOR ARMs available (30 year term). Minimum 640 credit score for all 1-2 unit properties, and 680 for all 3-4 unit properties and cash out transactions on investment properties, regardless of AUS decision. Minimum loan amount is $40,000 ($75,000 for investment properties). Maximum mortgage amount of $417,000 for a Single Family Residence, $533,850 for a 2-family property, $645,300 for a 3-family property, and $801,950 for a 4-family property (unless borrower/loan qualifies for the High Balance program). Fannie Mae County Loan limits can found at https://www.fanniemae.com/singlefamily/loan-limits Maximum number of borrowers allowed on a loan is 4 DU findings reflecting Approve/Eligible (Version 9.1 or 9.2) Maximum 95% LTV (unless borrower qualifies for the Expanded LTV/CLTV/HCLTV program) on all Purchases and Rate/Term Refinances (for borrowers that qualify for Mortgage Insurance) CLTV Maximums must meet MiMutual requirements for subordinate financing on purchase and refinance transactions. See individual product descriptions below for CLTV limitations. Loan Restrictions (Ineligible) Loans approved based on non-traditional credit history (a traditional credit report with valid credit scores is required) Loans requiring manual underwrites (loans that receive a Refer or that do not otherwise receive an Approve/Eligible) Refinance loans that have been restructured due to a financial hardship / in forbearance / short payoff loans Debt-to-Income Ratios: As determined by the AUS, unless otherwise specified by product type Maximum LTV / CLTV / HCLTV Access the applicable link to view the most current LTV Matrix (excludes DU Refi Plus and High-Balance Loans): DU v9.1 DU v9.2 Back to Top 04.03.2015 13 Conventional Underwriting Guidelines | Requirements and Restrictions Qualified Mortgages with Rebuttable Presumption This policy is intended for loans that are considered Qualified Mortgages (QM) with rebuttable presumption, and therefore do not meet QM safe harbor requirements. Conventional loans that are considered Higher Priced Mortgage Loans (HPMLs) because they exceed the section 35 calculation (APR that exceeds the APOR at the time the rate was set, by 1.5% or more) are permitted, providing the following criteria are met: Loan passes QM Points and Fees test Approve/Eligible findings HPML disclosure must be signed by borrower at least 24 hours prior to closing An appraisal must be obtained by a certified or licensed appraiser who conducts a physical visit of the interior of the subject property (n/a for DU Refi Plus) An additional appraisal may be needed by a separate appraiser may be needed if: o The seller acquired the property 90 days or less prior to the consumer agreement was signed and the agreement exceeds the seller’s acquisition price by more than 10%, or o The seller acquired the property 91 to 180 days prior to the consumer agreement and the price exceeds the seller’s acquisition price by more than 20% Cannot waive appraisal delivery timing – borrower must receive appraisal at least 3 days prior to closing An escrow account for payment of property taxes and insurance premiums is required Residual Income Evaluation (RIE) must be performed, with results determining eligibility requirements per the table below DU Refi Plus loans must have a maximum 45% back-end ratio, regardless of AUS findings. Jumbos are not permitted as HPMLs Residual Income Evaluation Table Primary Residence If monthly residual income is… $2,500 or greater ≥ $800 < $2,500 < $800 Then the minimum reserves required are… No minimum reserve requirement based on the residual income evaluation. Loan must still comply with the minimum reserve requirements for the base loan program. The greater of: 3mos liquid* PITI reserves are required, OR Minimum reserve requirements for the base loan program. Additional reserves should be considered for loans with higher layered risks n/a. The loan is not eligible for HPML/rebuttable presumption Second Homes and Investment Properties If monthly residual income is… $2,500 or greater < $2,500 Then the minimum reserves required are… Loan is eligible with acceptable RIE in file n/a. The loan is not eligible for HPML/rebuttable presumption Back to Top 04.03.2015 14 Conventional Underwriting Guidelines | Collateral Requirements Collateral Requirements To be eligible for financing, a property is to be free of health and safety hazards and major structural problems. Eligible Collateral Single Family Residences and 2-4 unit dwellings Planned Unit Developments (PUDs) Townhome/Rowhome Condominiums Log; Dome; Berm Homes; Pier Foundations; Auxiliary/Accessory Dwelling Units; Homes with extreme functional obsolescence (i.e. one bedroom). Must be common and typical for the area and have like comparable sales Modular Homes Properties located in age-restricted communities. Must be common and typical for the area and have like comparable sales Agricultural zoned properties (not income-producing farms) Ineligible Collateral Properties containing greater than 4 units Mobile/Manufactured Homes Investment Condos in Florida Commercial/Industrial use Income producing properties/Mixed Use Properties Leasehold Properties (title must be held in Fee Simple interest only) Properties currently listed for sale (refinances) Time-Share Units Construction Financing Properties vested in any Life Estates or LLCs (refinance transactions) Multiple dwellings on a single parcel of Land Unwarrantable Condominiums New construction homes purchased at auction Properties located in Coastal Barrier Resource Systems (CBRS) Cooperative units Back to Top 04.03.2015 15 Conventional Underwriting Guidelines | Collateral Requirements Appraisals Appraiser Independence MiMutual conforms to Appraiser Independence and as such, is prohibited from accepting appraisals prepared by appraisers who are selected, retained or compensated in any manner by a mortgage broker (or any member of a lender’s staff who is compensated on a commission basis). MiMutual requires that all conventional appraisals are ordered through your designated Appraisal Management Company (AMC). Please note that Appraiser Independence does not apply when a Form 2075 is obtained (per the DU Findings). Approved Appraiser List MiMutual does not use an approved appraiser list. Therefore, a copy of the appraiser’s license and current Errors & Omissions insurance will be required. All appraisals will be underwritten on a case-by-case basis. Uniform Appraisal Dataset (UAD) Effective for residential property appraisals with an effective date (date of inspection) of September 1, 2011 or after, appraisal reports must be completed in compliance with the Uniform Appraisal Dataset (UAD). This rule applies to all Conventional mortgage loans. The UAD defines all fields required for an appraisal submission for specific appraisal forms and standardizes definitions and responses for a key subset of fields. UAD was formulated to improve the quality and consistency of appraisal data. The UAD does not change the look of the existing appraisal forms, but some fields on the forms are being extended to include additional information. The appraisal forms that must be UAD-Compliant effective September 1st are: Uniform Residential Appraisal Report (FNMA Form 1004) Individual Condominium Unit Appraisal Report (FNMA Form 1073) Exterior-Only Inspection Individual Condominium Unit Appraisal Report (FNMA Form 1075) Exterior-Only Inspection Residential Appraisal Report (FNMA Form 2055) NOTE: MiMutual is unable to accept properties with a Condition Rating of C5 or C6, nor a Quality Rating of Q6. Back to Top 04.03.2015 16 Conventional Underwriting Guidelines | Collateral Requirements Appraisal Order Process MiMutual requires that all Conventional appraisals are ordered through one of our designated Appraisal Management Companies (AMCs). MiMutual provides links on our website to order appraisals. Begin at the MiMutual website home page (www.michiganmutual.com) to order your appraisal through your assigned AMC. Place the appraisal order in the name of MiMutual Inc., and enter all pertinent data including payment information. All appraisals must be paid for with a credit card at the time order is placed. Upload any required documents such as the Purchase Agreement. The AMC will schedule the appointment with the borrower or realtor as appropriate and complete the appraisal report. Upon completion of the appraisal report, the AMC will upload the appraisal to MiMutual’s system, and an email notification will be generated to inform the broker that it has been received. Revisions Due to Sales Contract Amendments If the sales contract is amended, the updated contract must be provided to the appraiser to ensure that the appraiser has been given the opportunity to consider any changes and their effect on value. If the appraiser determines that there is no impact to value, then no additional commentary is required from the appraiser. Appraisal Delivery Requirements Under the Dodd Frank Act, Regulation B has been revised for all applications taken on/after January 18, 2014. The borrower is required to receive a copy of all valuation documents developed in connection with an application for a loan that is secured by a first lien on a dwelling. This includes: Appraisals Desk reviews AVMs / BPOs MiMutual will deliver the valuation documents directly to the borrower. This will occur promptly upon completion of the documents or no later than three days prior to closing, whichever is earlier, unless the borrower chooses to waive their right to receive the valuation documents prior to closing on the Appraisal Delivery Timing Waiver disclosure. In this case, the valuation documents are not required to be delivered 3 days prior to closing, but must always be delivered at the time of consummation (at the latest). Back to Top (Remainder of page intentionally left blank) 04.03.2015 17 Conventional Underwriting Guidelines | Collateral Requirements Appraisal Report Forms Uniform Residential Appraisal Report (Form 1004): Used for single family properties, including those with an accessory unit, an individual unit in a PUD project, or a site condominium. Small Residential Income Property Appraisal Report (Form 1025): Used for 2 unit properties (including those that are located in a PUD project). Individual Condominium Unit Appraisal Report (Form 1073): Used for individual units in condominium projects. Market Conditions Addendum (Form 1004MC): Required for all Conventional loans with appraisals. Appraisal Update and/or Completion Report (Form 1004D): Required to report the completion of repairs and/or the satisfaction or requirements and conditions noted in the original appraisal report for existing properties and proposed/new construction. This is also used to extend the validity period of an existing appraisal that is due to expire (the appraisal may only be extended one time and must be extended before the expiration date of the existing appraisal). Comparable Rent Schedule (Form 1007): Required on all investment property transactions, including 2 unit properties in which the borrower will occupy one unit as a primary residence, regardless if rental income is used in the qualification. Exterior-Only Residential Appraisal Report (Form 2055): Used for single family properties, including an individual unit in a PUD project or a site condominium when determined by the AUS findings. Exterior-Only Inspection Individual Condominium Appraisal Report (Form 1075): Used for individual units in condominium projects when determined by the AUS findings. Desktop Underwriter Property Inspection Report (Form 2075): Used for single family properties, including an individual unit in a PUD project or a site condominium when determined by the AUS findings. HVCC does not apply when obtaining the 2075. Operating Income Statement (Form 216): Required on investment property transactions, including 2-4 unit properties in which the borrower will occupy one unit as a primary residence, if the borrower is using rental income to qualify Effective with DU Version 9.0, exterior-only property inspection appraisals and the DU Property Inspection Report will no longer be offered. The only appraisal types that will be recommended (based on the type of property) are: Uniform Residential Appraisal Report (Form 1004) Individual Condominium Unit Appraisal Report (Form 1073) Small Residential Income Property Appraisal Report (1025) In addition to the above full appraisal options, there will be loan casefiles that receive the property fieldwork waiver option. Back to Top 04.03.2015 18 Conventional Underwriting Guidelines | Collateral Requirements Fannie Mae Property Inspection Waiver (PIW) This may be used if the DU Findings Property and Appraisal Information section indicate a finding stating DU accepts the value submitted as the market value for the subject property and the loan is eligible for delivery to Fannie Mae without an appraisal. A $75 fee will be charged to exercise this waiver. If the waiver is not exercised, at least the minimum level of fieldwork recommended for the transaction must be obtained. The Property Inspection Waiver may not be used on: Investment Properties, New/Proposed Construction and bank/HUD/Fannie Mae/Freddie Mac owned properties. Value Reconsideration Request Reconsideration requests must be uploaded for review by the underwriter, and include at least one of the following in order to qualify for the continuance of the appeal process: Provide a previous appraisal dated no more than twelve (12) months prior to the effective date of the appraisal being appealed. Comps in the previous appraisal will not be assessed if sale dates are > 90 days from the new appraisal effective date; however, information in the appraisal regarding amenities, square footage, etc will be given consideration. Provide a minimum of 2 and up to 5 alternate open market sales, including all available data and MLS ticket, which have closed within 90 days of the appraisal effective date. Active listings and closed sales after the effective date of the appraisal will not be accepted. If the underwriter agrees that a reconsideration of value is warranted, they will forward to the AMC. A request for value reconsideration does not guarantee an adjustment in value. Appraisal Portability MiMutual will accept transferred appraisals on Conventional loans. The appraisal must be emailed to [email protected] by the previous lender and must also contain the invoice, Appraiser Independence certificate, UCDP certificates for both Fannie Mae and Freddie Mac, and a letter from the lender authorizing the transfer. If any of the documents above cannot be provided, a new appraisal ordered through one of MiMutual’s approved AMCs will be required. All transferred appraisals will be subject to an acceptable desk review ordered by MiMutual. NOTE: Transferred appraisals not permitted with a Collateral Underwriter (CU) risk score of 4 or 5. Appraisal Validity Period Conventional appraisals will be valid for 120 days for all property types: existing, proposed construction and under construction (formerly 6 months for existing property that is complete and 12 months for proposed and under construction). The Appraisal Update and/or Completion Report (FNMA Form 1004D) will be required to extend the validity period of an existing appraisal that is due to expire for existing, proposed, or new construction that is incomplete. The appraisal will then be valid for an additional 120 days. The appraisal may only be updated one time. Back to Top 04.03.2015 19 Conventional Underwriting Guidelines | Collateral Requirements Modular Home Eligibility MiMutual allows loans secured by modular homes built in accordance with the Uniform Building Code administered by state agencies responsible for adopting and administering building code requirements for the state in which the modular home is installed. Loans secured by on-frame modular construction are not eligible for financing with MiMutual. On-frame modular construction is defined as having a permanent chassis, but no evidence of compliance with the June 15, 1976, Federal Manufactured Home Construction and Safety Standards. Loans secured by prefabricated, panelized, or sectional housing are eligible. These properties do not have to satisfy HUD’s Federal Manufactured Home Construction and Safety Standards or the Uniform Building Codes that are adopted and administered by the state in which the home is installed. The home must conform to local building codes in the area in which it will be located. Factory-built housing not built on a permanent chassis such as modular, prefabricated, panelized, or sectional housing is not considered manufactured housing and is eligible under the guidelines for one-unit properties. These types of properties must assume the characteristics of site-built housing, must be legally classified as real property, and must conform to all local building codes in the jurisdiction in which they are permanently located. The purchase, conveyance, and financing (or refinancing) must be evidenced by a valid and enforceable firstlien mortgage or deed of trust that is recorded in the land records, and must represent a single real estate transaction under applicable state law. MiMutual affords modular, prefabricated, panelized, or sectional housing homes the same treatment as sitebuilt housing. Therefore, MiMutual does not have minimum requirements for width, size, roof pitch, or any other specific construction details. FEMA Declared Disaster Area Policy The FEMA Declared Disaster Area Policy applies to all areas eligible for individual assistance due to a federal government disaster declaration. If the subject property has had an appraisal completed prior to a declared disaster, prior to the end date of a declared disaster, or after a declared disaster with no comments addressing the post-disaster condition of the property from the appraiser, a 1004D with photos will be required to recertify the value/condition of the subject property. For properties located in a declared disaster area, where the AUS recommendation allows for a reduced property inspection (Property Valuation Update, PIW, 1075, 2055, 2075, 2095), a full appraisal (interior/exterior inspection) will be required for up to 90 days after the disaster incident period end date. The date of approval will be used to determine if sufficient time has elapsed. Repair Escrows Not allowed on Conventional loans. Back to Top 04.03.2015 20 Conventional Underwriting Guidelines | Collateral Requirements Minimum Square Footage All properties must have a minimum of 750 square feet. Exceptions will be considered for properties between 650 and 749 square feet if two thirds of the comparables also have <750 square feet. Acreage No maximum number of acres; however, property cannot have agricultural use and comparables must have similar acreage. Age-Restricted Communities Certification from the HOA will be required, verifying: Community must be intended and operated for occupancy by persons 55 years of age and older At least 80% of the occupied units must be occupied by at least 1 person who is 55 years of age or older Estimated Remaining Economic Life The appraiser is required to indicate the estimated remaining economic life of the subject property as a single number or as a range (must be deemed acceptable for at least the term of the new mortgage). Commercial/Industrial Zoning While there are no zoning classification restrictions, the property must have residential use and all comparable sales must have similar influence. The Zoning Compliance must be Legal or Legal Non-Conforming. The highest and best use of the subject property as improved (or as proposed) must be the present use. Illegal properties are not eligible for Conventional financing. Properties Listed For Sale within the Last 6 Months (Refinances) Cash Out Transactions The MLS listing is required to be cancelled at least six months prior to the application date or the loan is subject to a maximum 70% LTV. In all circumstances, listing agreements must be cancelled prior to the loan application. The listing agreement, evidence of cancellation, and signed/dated explanation from the borrower with the reason why the property was for sale is required at the time of loan submission. Rate/Term Transactions The MLS listing is required to be cancelled prior to loan application date (with the exception of DU Refi Plus loans). The listing agreement, evidence of cancellation, and signed/dated explanation from the borrower with the reason why the property was for sale is required at the time of loan submission. NOTE: These properties pose an increased risk to MiMutual, therefore may be subject to additional documentation and/or limitations. Back to Top 04.03.2015 21 Conventional Underwriting Guidelines | Collateral Requirements Properties Located on a Repaired Sinkhole Properties with repaired sinkholes/sinkhole activity may be determined to be eligible with the following items: Evidence the remediation was satisfactorily completed Evidence the proper permits were pulled at the time of repair, and were signed off on by a qualified engineer Copies of the initial engineering report, the repair reports, and the engineering certification Evidence of sinkhole insurance – either included on the borrower’s standard property insurance policy or a separate policy Any property with sinkhole damage that has not yet been repaired or cannot meet the criteria described above is ineligible for financing. Back to Top (Remainder of page intentionally left blank) 04.03.2015 22 Conventional Underwriting Guidelines | Condominiums Condominiums / PUDs Property Determination Condominiums If the word “condo” appears in the legal description, the property will be deemed a condominium. PUDs A Planned Unit Development (PUD) is a project or subdivision that consists of common property and improvements that are owned and maintained by an HOA for the benefit and use of the individual PUD units. In order for a project to qualify as a PUD, each unit owner’s membership in the HOA must be automatic and nonseverable, and the payment of assessments related to the unit must be mandatory. Detached PUDs No project review is required for loans secured by a detached unit within a PUD. Attached PUDs When the subject property is an attached unit within a PUD (whether new or established), the project must meet project review guidelines as described in this chapter, and the condo questionnaire is required to be completed. Conventional HOA Questionnaire An HOA Questionnaire must be completed and delivered to underwriting, regardless of project review type. While the use of the form located on MiMutual’s website is not mandatory, any other form used must contain the same information. Project Approval If complex is not FNMA approved, the project/unit must meet Fannie Mae requirements, and additional documentation such as complete Master Deed, Bylaws, and Budget may be required. Back to Top 04.03.2015 23 Conventional Underwriting Guidelines | Condominiums Insurance Requirements Hazard/Liability Insurance (Project Approval) The homeowners’ association is required to: Maintain adequate “master” or “blanket” property insurance in an amount equal to 100% of current replacement cost of the condominium exclusive of land, foundation, excavation and other items normally excluded from coverage; Maintain comprehensive general liability insurance covering all of the common elements, commercial space owned and leased by the owners’ association, and public ways of the condominium. If the HOA does not maintain 100% coverage, the unit owner may not obtain “gap” coverage to meet this requirement. Any project identified with a pooled insurance policy is ineligible. A pooled insurance policy may include a blanket policy that covers multiple unaffiliated associations or projects. As a reminder, an unaffiliated project is a condo (or PUD) that: Combines insurance not under the same master association Does not share the use of common facilities that are either not owned individually or as part of a master association/development Projects that are managed by the same management company HO-6 (Loan Level) The unit owner is required to: Obtain a “walls-in” coverage policy (HO-6 or its equivalent) if the master or blanket policy does not include interior unit coverage. The “walls-in” coverage must be sufficient, as determined by the insurer, to repair the interior of the condominium unit, including any additions, improvements and betterments to repair the unit to its original condition prior to the claim event. Back to Top (Remainder of page intentionally left blank) 04.03.2015 24 Conventional Underwriting Guidelines | Condominiums Fidelity Bond / Fidelity Insurance (Project Approval) Fidelity Bond Insurance may also be known as “Employee Dishonesty” or “Crime Policy” insurance. For all projects with more than 20 units, the homeowners association is required to obtain and maintain this insurance; The homeowners association must maintain this insurance for all officers, directors, and employees of the association and all other persons handling or responsible for funds administered by the association; The coverage must be no less than a sum equal to three months aggregate assessments on all units plus reserve funds unless State law mandates a maximum dollar amount of required coverage. If the homeowners association engages the services of a management company, the homeowners association must require the management company to maintain this insurance coverage for its officers, employees and agents handling or responsible for funds of, or administered on behalf of, the owners association. The required coverage must meet the following requirements: Must name the owners association as an obligee; Must be in an amount not less than the estimated maximum of funds, including reserve funds, in the custody of the owners association or management agent at any given time during the term of each bond; In no event may the aggregate amount of such bonds be less than a sum equal to 3 months aggregate assessments on all units plus reserve funds unless State law requires a maximum amount of required coverage. Flood (Project and Loan Level) For attached units, the homeowners’ association is required to obtain and maintain: Coverage equal to the 80% of the replacement cost or up to the National Flood Insurance Program (NFIP) standard of $250,000 per unit, whichever is less; The maximum limit of building insurance coverage of a residential condominium building in a regular program community is $250,000 times the number of units in the building (not to exceed the building’s replacement cost); The homeowners association, not the borrower or the individual unit owner, is responsible for obtaining and maintaining adequate flood insurance under the NFIP on buildings located in a Special Flood Hazard Area (SFHA); and The flood insurance coverage must protect the interest of borrowers who hold title to an individual unit as well as the common areas of the condominium project. The policy must cover all of the common elements and property (including machinery and equipment that are part of the building), as well as each of the individual units in the building. The contents coverage should equal 100% of the insurable value of all contents (including machinery and equipment that are not part of the building), owned in common by association members. If the subject is a detached unit, follow the flood insurance coverage requirements for standalone dwellings. Back to Top 04.03.2015 25 Conventional Underwriting Guidelines | Condominiums Site Condominiums A detached condo is not necessarily a site condo. Site condominiums are defined as: Single family totally detached dwellings (no shared garages or any other attached buildings such as archways or breezeways), and Are encumbered by a declaration of condominium covenants or condominium form of ownership, and The condominium unit consists of the entire structure as well as the site and air space, and are not considered to be common areas or limited common areas, and Insurance and maintenance costs are totally the responsibility of the unit owner, and Any common assessments collected will be for amenities outside of the footprint of the individual site. Project approval is required for site condominiums, as well as condos that do not meet the definition of site condo above (including detached condominiums). Site condos require the Uniform Residential Appraisal Report (Form 1004), and the Condominium Rider to the Mortgage/Deed of Trust (prepared by MiMutual) must be fully executed at closing. Site Condominium comparable sales should be used in completing the appraisal report. If the appraiser uses comparable sales other than site condos, they must provide an explanation in the appraisal report. A condo questionnaire is not required. Back to Top (Remainder of page intentionally left blank) 04.03.2015 26 Conventional Underwriting Guidelines | Condominiums Project Types The scope of MiMutual’s requirements and the specific eligibility criteria to be met are dependent upon various project and/or loan level characteristics. The project types that are acceptable to MiMutual, and the characteristics that define them, are described in the table below. Project Type Identification Criteria Established Condo Project A project for which all of the following are true: At least 90% of the total units in the project have been conveyed to the unit purchasers; The project is 100% complete, including all units and common elements; The project is not subject to additional phasing and annexation, and; Control of the HOA has been turned over to the unit owners Two- to Four-Unit Condo A project comprised of two, three, or four residential units in which each Project unit is evidenced by its own title and deed. A two- to four-unit condo project must be an established project, and may be comprised of attached and/or detached units Planned Unit Development A project or subdivision that consists of common property and (PUD) Project improvements that are owned and maintained by an HOA for the benefit and use of the individual PUD unit owners. Ineligible Project Types The following project types are ineligible for financing with MiMutual: New condo projects (not defined as “established”). All common areas and recreational facilities must be completed. The final Certificate of Occupancy for the final unit and/or subject unit may be required. Additional phasing and/or add-ons are not permitted. Newly-converted projects. Conversion of an existing building where completion did not occur more than 3 years ago (must be 3 years since conversion as determined by recording date on the master deed). 90% of units must be conveyed to unit purchasers other than the developer, project must be 100% complete and not subject to additional phasing, and HOA must be turned over to unit owners. Manufactured home projects Co-Op projects Back to Top 04.03.2015 27 Conventional Underwriting Guidelines | Condominiums Ineligible Project Characteristics MiMutual will not finance mortgage loans that are secured by units in certain condo or PUD projects if those projects have characteristics that make the project ineligible. Such characteristics are described in the table below. Ineligible Project Characteristics Investment securities (projects that have documents on file with the SEC or projects where unit ownership is characterized or promoted as an investment opportunity) Timeshare, fractional, or segmented ownership projects Projects with mandatory upfront or periodic membership fees for the use of recreational amenities, such as country club facilities and golf courses, owned by an outside party (including the developer or builder). Membership fees paid for the use of recreational amenities owned exclusively by the HOA or master association are acceptable. Projects that are managed and operated as a hotel or motel, even though the units are individually owned* Projects with covenants, conditions, and restrictions that split ownership of the property or curtail an individual borrower’s ability to utilize the property* Projects with property that is not real estate, such as houseboat projects* Any project that is owned or operated as a continuing care facility* Projects with non-incidental business operations owned or operated by the HOA including, but not limited to, a restaurant, spa, or health club* Projects that do not meet the requirements for live-work projects* Projects in which the HOA is named as a party to pending litigation, or for which the project sponsor of developer is named as a party to pending litigation that relates to the safety, structural soundness, habitability, or functional use of the project* Any project that permits a priority lien for unpaid common expenses in excess of Fannie Mae’s priority lien limitations* (This applies to all PUD projects, whether the units are attached or detached) Projects containing manufactured housing Projects that represent a legal, but non-conforming, use of the land, if zoning regulations prohibit rebuilding the improvements to current density in the event of their partial or full destruction Multi-dwelling unit projects that permit an owner to hold title to more than one dwelling unit, with ownership of all of his/her owned units evidenced by a single deed and financed by a single mortgage* The total space that is used for nonresidential or commercial purposes may not exceed 25%. See Calculation of Commercial Space below. Applicable Project Type Condo Attached PUD Units X X X X X X X X X X X X X X X X X X X X X X X X X X X Back to Top 04.03.2015 28 Conventional Underwriting Guidelines | Condominiums Projects in which a single entity (the same individual, investor group, partnership, or corporation) owns more than the following total number of units in the project: Projects with 2-4 units: 1 unit Projects with 5-20 units: 2 units Projects with 21 or more units: 10% Units currently subject to any lease arrangement must be included in the calculation. This includes lease arrangements containing provisions for the future purchase of the units such as lease-purchase and lease-to-own arrangements. X Units are not included in the calculation if they are owned by the developer/sponsor and are vacant and being actively marketed for sale. *see Fannie Mae’s Selling Guide for further details regarding these items Calculation of Commercial Space Any commercial space in the project or building in which the residential project is located must be compatible with the overall residential nature of the project. Rental apartments and hotels located within the project must be classified as commercial space even though these may be considered ‘residential’ in nature. Commercial space allocation is calculated by dividing the total non-residential square footage (both above and below grade) by the total square footage of the project or building. This calculation includes the total square footage of commercial space even if the residential and commercial owners are represented by separate associations. Non-residential square footage includes: Retail and commercial space, Parking space that is separate from parking allocated to residential unit owners, and Space that is non-residential in nature and owned by a private individual or entity outside of the HOA structure Examples include, but are not limited to: Public parking facilities (fee-based or free), Rental apartments, Hotels, Restaurants, and Private membership-based fitness facilities Non-residential square footage excludes amenities that are: Residential in nature; Designated for the exclusive use of the residential unit owners (such as, but not limited to, a fitness facility, pool, community room, and laundry facility); and Owned by the unit owners of the HOA Back to Top 04.03.2015 29 Conventional Underwriting Guidelines | Condominiums Max LTV on Florida Condos The following table provides the LTV allowances for loans secured by units in established condo projects located in Florida. The required project review type depends on the LTV ratio of the mortgage loan. For detailed requirements per review type, please see below. Primary Residence Second Home Investment Full (using CPM) 90% 85% Not Eligible Limited 75% 70% Not Eligible Project Review Methods A number of project review methods are available. Whether a project review method is allowable or required depends on: The unit type (attached or detached); The project type (condo or PUD); The project status (established – MiMutual does not finance units in new projects); and The mortgage transaction. The characteristics that dictate which method to use are shown in the following table. Unit and Project Type Project Review Method(s) Attached condo unit in an established project, Limited Review, only for a unit that is a o Principal residence with an LTV ratio ≤ 80%, or including an attached unit in a condo project that o Second home with an LTV ratio ≤ 75% includes a mixture of attached and detached units Full Review (completed with or without using Condo Project Manager (CPM)) Detached condo unit in an established project, Limited Review including a detached unit in a condo project that includes a mixture of attached and detached units Attached or detached unit in an established two- to Based on the mortgage transaction and project four-unit condo project characteristics, two- to four-unit condo projects may be reviewed using either Limited Review; or Full Review (completed with or without using CPM) Back to Top 04.03.2015 30 Conventional Underwriting Guidelines | Condominiums Limited Review To be eligible for a Limited Review, the unit securing the mortgage must not be in an ineligible project, be an attached or detached unit in an established condo project, and meet the other criteria described below. Limited Reviews must have been completed within 180 days prior to the Note date. Limited Review of Attached Units in Established Projects The following chart provides the maximum LTV/CLTV/HCLTV ratios based on occupancy types: Limited Review: Attached1 Established Projects, including 2-4 Unit Projects (excludes Florida) Occupancy Type Maximum LTV/CLTV% Principal Residence ≤80% Second Home ≤75% Investment Property Not Allowed 1 For Detached Established projects not located in the State of Florida, standard LTV restrictions apply. Documentation Requirements The Conventional Condominium Questionnaire found on the MiMutual website must be utilized for a Limited Review. This form must be completed in its entirety by the Condominium Homeowner’s Association. Master Insurance Policy for unit including General Liability, Fidelity Bond and Flood Insurance, if applicable. Full Review (using CPM) Full Review is required when the unit securing the mortgage is an attached unit. Two- to four-unit projects reviewed using the Full Review process must comply with all requirements of the Full Review, unless specifically stated otherwise. Condo Project Manager (CPM) must be used when the Full Review of a project is required. MiMutual will input loans in CPM and the loan file must be documented according to the CPM decision. The loan file must be documented with the unexpired CPM Certification. Project review must have been completed within 180 days prior to the Note date. Back to Top 04.03.2015 31 Conventional Underwriting Guidelines | Condominiums Eligibility Requirements The project must not be an ineligible project No more than 15% of the total units in a project may be 60 days or more past due on their common expense assessments (HOA dues). NOTE: In a two- to four-unit project, no unit owners may be 60 or more days past due on their HOA common expense assessments The HOA’s projected budget must be reviewed to determine that it Is adequate (i.e. it includes allocations for line items pertinent to the type of condo project), and Provides for the funding of replacement reserves for capital expenditures and deferred maintenance that is at least 10% of the budget. To determine whether the association has a minimum annual budgeted replacement reserve allocation of 10%, the annual budgeted replacement reserve allocation must be divided by the association’s annual budgeted assessment income (which includes regular common expense fees). The following types of income may be excluded from the reserve calculation: Incidental income on which the project does not rely for ongoing operations, maintenance, or capital improvements; Income collected for utilities that would typically be paid by individual unit owners, such as cable TV or internet access; Income allocated to reserve accounts; and Special assessment income NOTE: These requirements for a budget review and replacement reserves are not applicable to twoto four-unit projects. For projects in which the units are not separately metered for utilities, MiMutual must: Determine that having multiple units on a single meter is common and customary in the local market where the project is located, and Confirm that the project budget includes adequate funding for utility payments NOTE: These requirements are not applicable to two- to four-unit projects. The project must be located on contiguous parcels of land. It is acceptable for a project to be divided by public or private streets. The structures within the project must be within a reasonable distance from each other. Common elements and facilities, such as recreational facilities and parking, must be consistent with the nature of the project and competitive in the marketplace Back to Top 04.03.2015 32 Conventional Underwriting Guidelines | Condominiums Unit owners in the project must have the sole ownership interest in, and rights to the use of the project’s facilities, common elements, and limited common elements, except as noted below. Shared amenities are permitted only when two or more HOAs share amenities for the exclusive use of the unit owners. The associations must have an agreement in place governing the arrangement for shared amenities that includes the following: A description of the shared amenities subject to the arrangement; A description of the terms under which unit owners in the project may use the shared amenities; Provisions for the funding, management, and upkeep of the shared amenities; and Provisions to resolve conflicts between the associations over the amenities. Examples of shared amenities include, but are not limited to, clubhouses, recreational or fitness facilities, and swimming pools. The developer may not retain any ownership interest in any of the facilities related to the project. The amenities and facilities – including parking and recreational facilities – may not be subject to a lease between the unit owners of the HOA and another party. Parking amenities provided under commercial leases or parking permit arrangements with parties unrelated to the developer are acceptable. The financing of a single or multiple parking space(s) with the mortgage is permitted, provided that the parking space(s) and residential unit are included on one deed as evidenced on the legal description in the mortgage. In such cases, the LTV, CLTV, and HCLTV ratios are based on the combined value of the residential unit and the parking space(s). Phase I and II environmental hazard assessments are not required for condo projects unless MiMutual identifies an environmental problem through the performance of its project underwriting or due diligence. For investment property transactions on attached units in established projects (including two- to four-unit projects), at least 50% of the total units in the project must be conveyed to principal residence or second home purchasers. This requirement does not apply if the subject mortgage is for a principal residence or second home. Financial institution-owned REO units that are for sale (not rented) are considered owner-occupied when calculating the 50% owner-occupancy ratio requirement. If the project was a gut rehabilitation project, all rehabilitation work involved in a condo conversion must have been completed in a professional manner. “Gut rehabilitation” refers to the renovation of a property down to the shell of the structure, including the replacement of all HVAC and electrical components (unless the HVAC and electrical components are up to current code). The gut rehabilitation must have been completed at least 3 years ago as evidenced by the date on the master deed. 90% of units must be conveyed to unit purchasers other than the developer, project must be 100% complete and not subject to additional phasing, and HOA must be turned over to unit owners. Back to Top 04.03.2015 33 Conventional Underwriting Guidelines | Condominiums Restrictions for Units in Florida Minimum 700 credit score Purchase and rate/term refinance transactions only Documentation Requirements The Conventional Condominium Homeowners Certification Form (found on the MiMutual website) or similar form containing the same information must be utilized for a Full Review. It must be completed in its entirety by the condo’s Homeowners Association. Current budget with reserves Master insurance policy for unit including General Liability, Fidelity Bond, and Flood Insurance (if applicable) Back to Top 04.03.2015 34 Conventional Underwriting Guidelines | Credit Credit Documentation Requirements All documentation must be from a reasonably reliable third-party source, and must satisfy the requirements of the Ability to Repay Rule. Verification of Institutional Mortgage History A current payoff is required on all refinance transactions and one of the following: Verification of Mortgage dated within thirty days of closing. If mortgage history is current on credit bureau and last reported date is within sixty days, and payoff shows current, no Verification of Mortgage is required. This applies to subject property and any other properties owned. (If mortgage is included as part of a bankruptcy or is otherwise not reported accurately on credit report, a payment history/ledger will be required). 12 months canceled checks (front and back) or 12 consecutive month’s bank statements showing payments. Verification of Rental Payment History If Verification of Rental Payment History is required, one of the following options may be used: VOR from an uninterested party 12 months canceled checks (front and back) or 12 consecutive month’s bank statements showing payments Land Contract/Contract for Deed Copy of Land Contract (recorded or unrecorded) Last 12 (or from inception of the contract) consecutive months canceled checks (front and back), or bank statements showing payments. Lease with Option to Purchase Copy of Lease w/Option Agreement Last 12 consecutive months canceled checks (front and back), or bank statements showing payments. NOTE: All lease options are treated as purchase transactions. Any deposit put down at the time agreement was executed can be used toward the down payment, as long as a copy of cancelled check can be provided as verification. Rent credit can be applied for the amount of rent paid over and above the standard market rents (as evidenced by a comparable rent schedule provided with the FHA appraisal). Credit Reports All credit reports since the date of application must be provided to the MiMutual underwriter for review. If a credit report (or multiple reports) exist that were pulled before the credit report being used to decision the file, the underwriter will condition for a copy of each report and analyze the data as a part of the borrower’s credit review. Back to Top 04.03.2015 35 Conventional Underwriting Guidelines | Credit Housing Payment History If applicable, all Conventional loans require a 0x30 housing payment history in the last 12 months (all residences collectively). NOTE: Timeshares are considered as consumer debt, and not real estate. Therefore, any adverse credit on a timeshare should not be considered when analyzing mortgage delinquency/foreclosure. Land Contracts When the proceeds of a mortgage loan are used to pay off the outstanding balance on an installment land contract (also known as contract or bond for deed) that was executed within the 12 months preceding the date of the loan application, MiMutual will consider the mortgage loan to be a purchase money mortgage loan. The LTV ratio for the mortgage loan must be determined by dividing the new loan amount by the lesser of the total acquisition cost (defined as the purchase price indicated in the land contract, plus any costs the purchaser incurs for rehabilitation, renovation, or energy conservation improvements), or the appraised value of the property at the time the new mortgage loan is closed. The expenditures included in the total acquisition cost must be fully documented by the borrower. When the installment land contract was executed more than 12 months before the date of the loan application, MiMutual will consider the mortgage loan to be a limited cash-out refinance. In this case, the LTV ratio for the mortgage loan must be determined by dividing the new loan amount by the appraised value of the property at the time the new mortgage loan is closed. Cash out refinance transactions involving land contracts are not eligible. Back to Top (Remainder of page intentionally left blank) 04.03.2015 36 Conventional Underwriting Guidelines | Credit Bankruptcy Chapter 7 Bankruptcy MiMutual will deem the age of the bankruptcy by the discharge/dismissal date for Chapter 7. Chapter 7 BKs discharged less than 4 years will be ineligible. Chapter 13 Bankruptcy Discharged Chapter 13 MiMutual will deem the age of the bankruptcy by the discharge date. Chapter 13 BKs discharged less than 2 years will be ineligible. Dismissed Chapter 13 MiMutual will deem the age of the bankruptcy by the dismissal date. Chapter 13 BKs dismissed less than 4 years will be ineligible. Exceptions for Extenuating Circumstances A two-year waiting period is permitted after a Chapter 13 dismissal, if extenuating circumstances can be documented (dismissal due to the borrower’s inability to complete the plan is ineligible for the exception to the waiting period, and must wait a full four years). There are no exceptions permitted to the two-year waiting period after a Chapter 13 discharge. Multiple Bankruptcy Filings For a borrower with more than one bankruptcy filing within the past seven years, a five-year waiting period is required, measured from the most recent dismissal or discharge date. NOTE: The presence of multiple bankruptcies in the borrower’s credit history is evidence of significant derogatory credit and increases the likelihood of future default. Two or more borrowers with individual bankruptcies are not cumulative, and do not constitute multiple bankruptcies. For example, if the borrower has one bankruptcy and the coborrower has one bankruptcy this is not considered a multiple bankruptcy. Exceptions for Extenuating Circumstances A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the most recent bankruptcy discharge or dismissal date. The most recent bankruptcy filing must have been the result of extenuating circumstances. Back to Top 04.03.2015 37 Conventional Underwriting Guidelines | Credit Foreclosure MiMutual will deem age of the foreclosure by the completion date (Sheriff’s Deed). Time elapsed must be 7 years or greater. Exceptions for Extenuating Circumstances A three-year waiting period is permitted if extenuating circumstances can be documented, and is measured from the completion date of the foreclosure action. Additional requirements apply between three and seven years, which include: Maximum LTV/CLTV/HCLTV ratios are the lesser of 90% or the maximum LTV/CLTV/HCLTV ratios for the transaction per the LTV Matrix The purchase of a principal residence is permitted Limited cash-out refinances are permitted for all occupancy types pursuant to all standard guidelines in effect NOTE: The purchase of second homes or investment properties, and cash-out refinances (any occupancy type) are not permitted until a seven year waiting period has elapsed. Foreclosures due to financial mismanagement are not eligible until seven years have elapsed. Foreclosure and Bankruptcy on the Same Mortgage If a mortgage debt was discharged through a bankruptcy, the bankruptcy waiting periods may be applied if MiMutual obtains the appropriate documentation to verify that the mortgage obligation was discharged in the bankruptcy. Otherwise, the greater of the applicable bankruptcy or foreclosure waiting periods must be applied. Deed-in-Lieu of Foreclosure, Preforeclosure Sale, and Charged-Off Mortgages These transaction types are completed as alternatives to foreclosure. A deed-in-lieu of foreclosure is a transaction in which the deed to the real property is transferred back to the servicer. These are typically identified on the credit report through Remarks Codes such as “Forfeit deed-in-lieu of foreclosure.” A preforeclosure sale or short sale is the sale of a property in lieu of a foreclosure resulting in a payoff of less than the total amount owed, which was pre-approved by the servicer. These are typically identified on the credit report through Remarks Codes such as “Settled for less than full balance.” A charge-off of a mortgage account occurs when a creditor has determined that there is little (or no) likelihood that the mortgage debt will be collected. A charge-off is typically reported after an account reaches a certain delinquency status, and is identified on the credit report with a manner of payment (MOP) code of “9.” A four-year waiting period is required from the completion date of the deed-in-lieu of foreclosure, preforeclosure sale, or charge-off as reported on the credit report or other documents provided by the borrower. Exceptions for Extenuating Circumstances A two-year waiting period is permitted if extenuating circumstances can be documented. NOTE: Deeds-in-lieu and preforeclosure sales may not be accurately or consistently reported in the same manner by all creditors or credit reporting agencies. 04.03.2015 38 Conventional Underwriting Guidelines | Credit Hardship Modifications Purchases On a purchase transaction, a previous hardship modification does not render a borrower ineligible for financing. However, preforeclosure seasoning requirements must be met. Refinances A previous hardship modification is ineligible on refinance transactions. Extenuating Circumstances for Derogatory Credit Extenuating circumstances are nonrecurring events that are beyond the borrower’s control that result in a sudden, significant, and prolonged reduction in income or a catastrophic increase in financial obligations. If a borrower claims that derogatory information is the result of extenuating circumstances, MiMutual must substantiate the borrower’s claim. Examples of documentation that can be used to support extenuating circumstances include documents that confirm the event (such as a copy of a divorce decree, medical reports or bills, notice of job layoff, job severance papers, etc.) and documents that illustrate factors that contributed to the borrower’s inability to resolve the problems that resulted from the event (such as a copy of insurance papers or claim settlements, property listing agreements, lease agreements, tax returns (covering the periods prior to, during, and after a loss of employment, etc.). MiMutual must obtain a letter from the borrower explaining the relevance of the documentation. The letter must support the claims of extenuating circumstances, confirm the nature of the event that led to the bankruptcy or foreclosure-related action, and illustrate the borrower had no reasonable options other than to default on their financial obligations. Requirements for Reestablishing Credit After a bankruptcy, foreclosure, deed-in-lieu of foreclosure, or pre-foreclosure sale / short sale, the borrower’s credit will be considered re-established if all of the following are met: The waiting period and the related requirements are met The loan receives an Approve recommendation from DU The borrower has a traditional credit history. Nontraditional credit or “thin files” are not acceptable Consumer Credit Counseling Acceptable on Approve/Eligible AUS findings with no additional documentation required. Back to Top 04.03.2015 39 Conventional Underwriting Guidelines | Credit Credit Score MiMutual will require a minimum credit score of 640. MiMutual will take the middle score from the three reporting credit repositories. If only 2 of 3 scores report, the lower of the 2 scores will be used. Borrowers with only 1 credit score may be considered with traditional credit depth. MiMutual does not underwrite loans for borrowers with only non-traditional credit. NOTE: At times, non-traditional credit may be requested / utilized to supplement and/or strengthen a borrower’s credit profile. Valid Credit Score Validating credit scores is subjective, and it typically requires 2-4 trade lines to validate a credit score depending on depth of credit, the type of trade line, and length of time established. If you are in doubt, email our scenario help desk ([email protected]), submit your scenario through our website, or contact your Account Executive. Submission of a full credit package including all income and asset information for underwriter review may be required. Borrowers/Co-Borrowers Occupying MiMutual requires a minimum 640 middle credit score for all borrowers. Non-Occupying Co-Borrowers MiMutual does not allow non-occupant co-borrowers on Conventional loans. Disputed Accounts When erroneous or disputed accounts are identified on the DU Findings Report, the accuracy of the disputed trade line(s) must be verified to determine if the trade line(s) belong to the borrower and confirm the accuracy of the payment history. To satisfy these conditions, one of the following options must be used: If the trade line does not belong to the borrower, or the reported payment history is inaccurate, written documentation satisfying the DU condition must be obtained and included in the loan file. Under these circumstances, when the information is validated, DU may require no further action. If the trade line does belong to the borrower and the reported payment history is accurate, the disputed trade line(s) must be considered in the credit risk assessment. To ensure the disputed trade line is considered, a new credit report must be obtained with the trade line(s) no longer reported as disputed and resubmit the loan case file to DU. As manual underwriting is not available on MiMutual’s Conventional program, the DU requirement must be satisfied by using one of the above-stated options. If DU does not issue the disputed tradeline message, MiMutual is not required to further investigate the disputed tradeline on the credit report, obtain an updated credit report (with the tradeline no longer disputed), or manually underwrite the loan. However, MiMutual is required to ensure that the payment for the tradeline, if any, is included in the total expense ratio if the account does belong to the borrower. Back to Top 04.03.2015 40 Conventional Underwriting Guidelines | Credit Credit Inquiries within 90 days of Report Date All credit inquiries dated within the last 90 days of report date must be addressed by the borrower(s). An itemized list detailing each inquiry must be provided (date, creditor, and outcome), along with a satisfactory explanation for each inquiry. A blanket statement addressing all inquiries at once is unacceptable. If any new debt was incurred, provide evidence of terms for inclusion in debt ratio. Accounts with No Monthly Payment Reported For revolving and installment debt, MiMutual will use 5% of the monthly balance if the credit report does not reflect a monthly payment, or if satisfactory documentation of the monthly payment amount cannot be provided. For revolving accounts, the greatest of 5% of the balance or $10 will be used. HELOCs If not shown on the credit report, payments on a HELOC with an outstanding balance may be calculated at the: Greater of $10 or 5% of the outstanding balance, or Payment reflected on the borrower’s billing statement If the HELOC has a zero balance, no payment is required to be included for qualifying. Open 30-Day Charge Accounts Open 30-day charge accounts must be paid off at or prior to closing if: the borrower is unable to document sufficient assets to cover the unpaid balance, or the borrower is unable to document that the charges will be reimbursed by his or her employer Contingent Liability Contingent liability exists when an individual will be held responsible for payment of a debt should another jointly obligated party default on the payment. Unless the borrower can provide conclusive evidence from the debt holder that there is no possibility the debt holder will pursue debt collection against him or her should the other party default the full payment will be included in the DTI. If the account is paid as agreed and the last 12 months canceled checks are provided (showing the co-obligor is making the payments), this monthly payment will not be included in the borrower's debt ratio. Accounts listed on the credit report that are not paid as agreed, and/or accounts in borrower’s name only (individual accounts) will be included in the debt ratio. In cases of divorce, when the Judgment of Divorce indicates the ex-spouse has received the marital property and is liable for the debt, cancelled checks would not be required. Joint/Co-Signed Debts by Applicants If the account is paid as agreed and the last 12 months canceled checks are provided (showing the co-obligor is making the payments), this monthly payment will not be included in the borrower's debt ratio. Accounts listed on the credit report that are not paid as agreed, and/or accounts in borrower’s name only (individual accts) will be included in the debt ratio. Back to Top 04.03.2015 41 Conventional Underwriting Guidelines | Credit Business Debt in Borrower’s Name When a self-employed borrower claims that a monthly obligation that appears on his or her personal credit report is being paid by the borrower’s business, the lender must confirm that it verified that the obligation was actually paid out of company funds and that this was considered in its cash flow analysis of the borrower’s business. The account payment does not need to be considered as part of the borrower’s individual recurring monthly debt obligations if: The account in question does not have a history of delinquency, The business provides acceptable evidence that the obligation was paid out of company funds (such as 12 months of cancelled company checks), and The lender’s cash flow analysis of the business took payment of the obligation into consideration The account payment does need to be considered as part of the borrower’s individual recurring monthly debt obligations in any of the following situations: If the business does not provide sufficient evidence that the obligations was paid out of company funds If the business provides acceptable evidence of its payment of the obligation, but the lender’s cash flow analysis of the business does not reflect any business expense related to the obligation (such as an interest expense – and taxes and insurance, if applicable – equal to or greater than the amount of interest that one would reasonably expect to see given the amount of financing shown on the credit report and the age of the loan), it is reasonable to assume that the obligation has not been accounted for in the cash flow analysis If the account in question has a history of delinquency. To ensure that the obligation is counted only once, the lender should adjust the net income of the business by the amount of interest, taxes, or insurance expense, if any, that relates to the account in question. Installment Debt Installment accounts (excluding leases) with less than 10 payments remaining on the balance may be excluded from the debt-to-income ratio (DTI). If the amount of the debt affects the borrower’s ability to make the mortgage payment during the months immediately after loan closing MiMutual will include the debt in the DTI (particularly if the borrower will have limited or no cash assets after loan closing). NOTE: Lease accounts are always included in the debt ratio, regardless of number of months remaining on the lease agreement. Projected Obligations If a debt payment is scheduled to begin within twelve months of the mortgage loan closing, the anticipated monthly obligation will be included in the DTI. MiMutual will use 5% of the monthly balance if the credit report does not reflect a monthly payment or satisfactory documentation of the monthly payment cannot be provided Similarly, balloon notes, “12 months same as cash”, etc. will be considered in the DTI. NOTE: Student loans are required to be included in the DTI on all Conventional loans, regardless of deferment period. To determine qualifying ratios, a payment calculated at 2% of the outstanding balance may be used if no payment is stated on the credit report. Back to Top 04.03.2015 42 Conventional Underwriting Guidelines | Credit Obligations Not Considered Debt Obligations not to be considered debt (or subtracted from the borrower’s gross income) for qualifying purposes include federal, state and local income taxes; FICA or other retirement contributions such as 401k contributions (including 401k loans), union dues, child care expenses, open accounts with zero balances, voluntary deductions to one’s bank/investment account, and accounts on credit with an ECOA status that indicates the borrower is an Authorized User. Calculating Housing Expense Ratio When calculating the housing expense ratio, the payment for the secondary financing must be included. If not shown on the credit report, payments on a HELOC with an outstanding balance may be calculated at the: Greater of $10 or 5% of the outstanding balance, or Payment reflected on the borrower’s billing statement If the HELOC has a zero balance, no payment is required to be included for qualifying. Payoff or Pay Down of Debt for Qualification Payoff of installment debt solely to qualify must be carefully evaluated and considered in the overall loan analysis. The borrower’s history of credit use should be a factor in determining whether the appropriate approach is to include or exclude debt for qualification. Paydown of installment debt to 10 payments or less in order to qualify must be carefully evaluated and considered in the overall loan analysis. Any payment that is determined to be substantial (i.e. would affect the borrower’s ability to make the mortgage payment during the months immediately following closing) will be included in the DTI, particularly if the borrower will have limited to no cash assets after closing. Revolving debt is not permitted to be paid off or paid down in order to qualify; however, when revolving debt is being paid off through a cash out refinance: If the account is to be paid off and closed, a monthly payment on the current outstanding balance does not need to be included in the borrower’s long-term debt (i.e., not included in the debt-to-income ratio) If the account is to be paid off but not closed, a monthly payment on the current outstanding balance should be considered as long-term debt Back to Top 04.03.2015 43 Conventional Underwriting Guidelines | Credit Past-Due, Collections, and Charge-Off Accounts Accounts that are reported as past due (not reported as collection accounts) must be brought current. For one-unit, principal residence properties, borrowers are not required to pay off outstanding collections or charge-offs, regardless of the amount. For two- to four-unit owner-occupied and second home properties, collections and charge-offs totaling more than $5,000 must be paid in full prior to or at closing For investment properties, individual accounts equal to or greater than $250 and accounts that total more than $1,000 must be paid in full prior to or at closing. NOTE: If the collection account is marked “Paid by Close” in the online loan application, DU will issue a message in the Findings Report stating that the collection must be paid. Judgments, Garnishments, and Liens Open judgments, garnishments, and all outstanding liens that are in the Public Records section of the credit report will be identified in the Underwriting Findings report, and must be paid off at or prior to closing. Documentation of the satisfaction of these liabilities, along with verification of funds sufficient to satisfy these obligations, must be provided. Back to Top (Remainder of page intentionally left blank) 04.03.2015 44 Conventional Underwriting Guidelines | Employment/Income Employment/Income Generally borrowers must be employed for 2 years in the same line of work. MiMutual will use a college degree and/or transcripts to document previous history, if dated within 6 months of current employment start date. Large fluctuations in income are ALWAYS subject to underwriter discretion. MiMutual will do a phone verification of employment on all loans within 10 days of closing. MiMutual will require IRS transcripts for the most recent two tax periods (W2s and 1040s) to validate all income used for qualifying, including business returns (Partnerships, S Corporations, and Corporations) that are required and/or provided. All 4506T results must be obtained by MiMutual. Documentation Requirements All documentation must be from a reasonably reliable third-party source, and must satisfy the requirements of the Ability to Repay Rule. Hourly or Salaried Employees Provide one of the following: One computer generated most recent year-to-date pay stub documenting one full month’s earnings and last two years W-2's. One computer generated most recent year-to-date pay stub documenting one full month’s earnings and a signed Verification of Employment. Non-computer generated or handwritten pay stubs require last two years W-2's and a signed Written Verification of Employment. Overtime and Bonus Income Overtime and bonus income can be used to qualify if the borrower has received this income for the past two years, the income stream has been consistent, and is likely to continue. If the income has not been stable and/or is not likely to continue, it may not be used to qualify. Periods of overtime and bonus income received for less than two years may be acceptable and will be considered on a case-by-case basis. Second Jobs/Part-Time Income Second Jobs/Part-Time Income can be used to qualify if the borrower has received this income for the past two years, the income stream has been consistent, and is likely to continue. If the income has not been stable and/or is not likely to continue, it may not be used to qualify. Periods of Second Jobs/Part-Time Income received for less than two years may be acceptable and will be considered on a case-by-case basis. Back to Top 04.03.2015 45 Conventional Underwriting Guidelines | Employment/Income Seasonal Employment Seasonal income may be used to qualify the borrower, permitting: It can be verified that the borrower has worked in the same job (or the same line of seasonal work) for the past 2 years The borrower’s employer can confirm that there is a reasonable expectation that the borrower will be rehired for the next season Unemployment Benefits Unemployment compensation cannot be used to qualify the borrower unless it is clearly associated with seasonal employment that is reported on the borrower’s signed federal income tax returns, and is expected to recur. Union Employees Union employees who receive their compensation from multiple employers based on assignments from their local labor union are acceptable, and not deemed unstable. Income may be used to qualify the borrower provided; The union provides a letter verifying the borrower is currently a member in good standing Most recent paystub is provided verifying borrower is currently employed W2 statements for all jobs in the last 3 years are provided, supporting a history of employment with the union Commission Income Commission income (including borrowers paid piece work/piece job, truckers paid per mile, etc.) can be used to qualify if the borrower has received this income for the past two years, the income stream has been consistent, and is likely to continue. If the income has not been stable and/or is not likely to continue, it may not be used to qualify. Periods of commission income received for less than two years may be acceptable and will be considered on a case-by-case basis (commission income earned for less than one year will not be considered effective income). In addition to normal employment documentation, copies of tax returns for the last two years are required and any Unreimbursed Business Expenses (see below) must be subtracted from the borrower’s qualifying income prior to calculating the housing and debt-to-income ratios. 1099 Employees Provide one of the following: Last two years tax returns and one computer generated pay stub no more than 30 days old at time of closing, showing year-to-date earnings. Last two years tax returns and a signed Written Verification of Employment no more than 90 days old at time of closing, showing year-to-date earnings. Back to Top 04.03.2015 46 Conventional Underwriting Guidelines | Employment/Income Unreimbursed Business Expenses Unreimbursed Business Expenses from Schedule A / Form 2106 must be deducted from the borrower’s qualifying income. A 2 year average must be taken, unless the expenses are increasing from year to year. In this case, a 12 month average of the most recent (higher) year must be used. Automobile Allowances Only the amount by which the borrower’s automobile allowance exceeds the automobile expense may be used as income (the difference between the automobile allowance and the 2106 expense may be added to income if positive or must be treated as a liability if negative). In addition, the borrower’s auto loan payment must be counted as a debt and may not be offset by the automobile allowance. Self-Employed Any individual who has a 25% or greater ownership interest in a business is considered to be self-employed. Even if the income from the self-employed borrower’s business is not used for qualification purposes, the business must still be analyzed to ensure that it will not negatively affect the borrower’s personal income or assets. When the borrower is self-employed, the borrower’s last two years complete tax returns (business and personal) must be obtained and analyzed on a cash flow analysis form to determine the impact of any business losses on the income used to qualify, regardless of whether or not the self-employment income is being used to qualify. Additionally, a signed year-to-date profit and loss statement is required. Business returns may be required (as determined by the AUS findings). If business returns are required and/or provided, a fully executed Form 4506-T for each business will be required, and will be processed by MiMutual prior to closing. If the income is being considered for qualification, the borrower must have ownership in the same company for the last 2 years. NOTE: A Profit & Loss Statement will be used to support a two year income average; however, will not be used for qualifying purposes. Back to Top 04.03.2015 47 Conventional Underwriting Guidelines | Employment/Income Alimony, Child Support, or Separate Maintenance Document that alimony, child support, or separate maintenance will continue to be paid for at least three years after the date of the mortgage application, as verified by one of the following: A copy of a divorce decree or separation agreement (if the divorce is not final) that indicates payment of alimony or child support and states the amount of the award and the period of time over which it will be received. If a borrower who is separated does not have a separation agreement that specifies alimony or child support payments, MiMutual will not consider any proposed or voluntary payments as income. Any other type of written legal agreement or court decree describing the payment terms for the alimony or child support. Documentation that verifies any applicable state law that mandates alimony, child support, or separate maintenance payments, which must specify the conditions under which the payments must be made. MiMutual will check for limitations on the continuance of the payments, such as the age of the children for whom the support is being paid or the duration over which alimony is required to be paid. No less than six months of the borrower’s most recent regular receipt of the full payment must be documented. MiMutual will review the payment history to determine its suitability as stable qualifying income. To be considered stable income, full, regular, and timely payments must have been received for six months or longer. Income received for less than six months is considered unstable and may not be used to qualify the borrower for the mortgage. In addition, if full or partial payments are made on an inconsistent or sporadic basis, the income is not acceptable for the purpose of qualifying the borrower. Back to Top (Remainder of page intentionally left blank) 04.03.2015 48 Conventional Underwriting Guidelines | Employment/Income Social Security Income Social Security Income for retirement or long-term disability that the borrower is drawing from his or her own account/work record will not have a defined expiration date and must be expected to continue. However, if Social Security benefits are being paid as a benefit for a family member of the benefit owner, that income may be used in qualifying if the lender obtains documentation that confirms the remaining term is at least three years from the date of the mortgage application. Document regular receipt of payments, as verified by the following, depending on the type of benefit and the relationship of the beneficiary (self or other) as shown in the table below. Borrower is Drawing Social Borrower is Drawing Social Security Benefits from Own Security Benefits from Another Account / Work Record Person’s Account / Work Recorda Retirement SSA Award Letter, or SSA Award Letter, Disability Proof of current receipt Proof of current receipt, and Survivor Benefits NA Three year continuance Supplemental Security Income NA SSA Award Letter, and Proof of current receipt a Examples of how a borrower might draw Social Security Benefits from another person’s account/work record and use the income for qualifying: A borrower may be eligible for benefits from a spouse, ex-spouse, or dependent parents (the benefit is paid to the borrower on behalf of the spouse, etc), or A borrower may use Social Security Income received by a dependent (a minor or disabled dependent) Type of Social Security Benefit Pension/Retirement Income Document regular and continued receipt of the income, as verified by: Letters from the organizations providing the income, Copies of retirement award letters, Copies of signed federal income tax returns, IRS w-2 or 1099 forms, or Proof of current receipt. Retirement income must be likely to continue for at least the next three years. If retirement income is paid in the form of a distribution from a 401(k), IRA, or Keogh retirement account, determine whether the income is expected to continue for at least three years after the date of the mortgage application. In addition: The borrower must have unrestricted access without penalty to the accounts; and If the assets are in the form of stocks, bonds, or mutual funds, 70% of the value (remaining after any applicable costs for the subject transaction) must be used to determine the number of distributions remaining to account for the volatile nature of these assets. Back to Top 04.03.2015 49 Conventional Underwriting Guidelines | Employment/Income Military Income, Entitlements, and Reserve Duty Income A borrower who is a member of the United States Armed Forces may receive pay entitlements such as flight or hazard duty, rations, clothing allowance, or quarters allowance in addition to base pay. MiMutual will consider these entitlements as qualifying income if documented and likely to continue for the next three years. Income paid to military reservists while they are satisfying their reserve obligation is also acceptable if it satisfies the same stability and continuity tests applied to secondary employment Foster Care Income Verify the foster care income with letters of verification from the organizations providing the income, and document that the borrower has a two-year history of providing foster care services. Foster care income must be likely to continue for the next three years. Non-Taxable Income Non-taxable income may be grossed-up by 125%. Examples of non-taxable income are: Social Security / VA Benefit Child Support Foster Care Military Allowances: Basic Allowance for Housing (BAH), Basic Allowance for Subsistence (BAS), clothing allowances, hazard pay, rations allowance, combat pay, flight pay, overseas pay, etc. NOTE: All of these income types require a minimum 3 year continuance to be used for qualifying. Short Term Disability / Workman’s Comp Not eligible. No Exceptions. Projected Income MiMutual does not permit projected income to be used to qualify. The borrower must have started their new job, and have a paystub to support full time earnings prior to closing. Foreign Income Foreign income will be considered as acceptable for qualifying only if the income is claimed on US Tax Returns and verifiable via 4506T results. Back to Top 04.03.2015 50 Conventional Underwriting Guidelines | Employment/Income Maternity Leave If the borrower will return to work as of the first mortgage payment date, the borrower's regular employment income may be used for qualifying. If the borrower will not return to work as of the first mortgage payment date, MiMutual will use the lesser of the borrower's regular employment income or maternity leave income (if any). If it is determined a borrower will be on maternity leave at the time of closing and that borrower's income is needed to qualify for the loan, the effective income used for qualifying must be supported and confirmation employment will continue must be documented as described below: The borrower must have a stable employment and income history that meets standard eligibility requirements; and The borrower must provide written confirmation of his or her intent to return to work and the agreed upon date of return as evidenced by documentation provided by the employer. Information from the borrower's employer indicating that the borrower does not have the right to return to work after the leave period would conclude the borrower’s income may not be used as effective income for qualifying. A verbal verification of employment is required to be obtained within 10 business days of closing. If the employer confirms the borrower is on maternity leave, and the return to work date is consistent with the documentation provided, this is sufficient to consider the borrower as employed. Income must be verified accordingly with: the amount and duration of the borrower's “maternity leave income,” which may require multiple documents or sources depending on the type and duration of the leave period; and the amount of the “regular employment income” the borrower received prior to the maternity leave (regular employment income includes, but is not limited to, the income the borrower receives from employment on a regular basis that is eligible for qualifying purposes for example, base pay, commissions, and bonus) Note: Income verification may be provided by the borrower, by the borrower's employer, or by a third-party employment verification vendor. Back to Top 04.03.2015 51 Conventional Underwriting Guidelines | Employment/Income Rental Income If the borrower has a history of renting the subject or another property, generally the rental income will be reported on Schedule E of the borrower’s personal tax returns , or on Rental Real Estate Income and Expenses of a Partnership or an S Corporation form (IRS Form 8825) of a business tax return . If the borrower does not have a history of renting the subject property, MiMutual may use a current lease agreement to document rental income per the direction below. If a lease is accepted as documentation of rental income, MiMutual will use the vacancy factor of 25% for all properties. If a property is not currently rented, no rental income may be used to qualify the borrower. Rental Income from the Subject Property When the Subject Property is the Primary Residence The following items will be required to document rental income when the subject property is the borrower’s primary residence: Form 1007 or 1025, as applicable, and either: o Last year’s federal income tax returns, with a history of receiving rents on Schedule E, or o Copies of the current lease agreement(s) and Form 998/216 (Operating Income Statement), if the borrower can document a qualifying exception When the Subject Property is an Investment Property The following items will be required to document rental income when the subject property is the borrower’s investment property: Form 1007 or 1025, as applicable, Proof of 6 months’ rent loss insurance, Evidence of a two-year history of managing 1-4 unit investment properties, and either: o Last year’s federal income tax returns, with a history of receiving rents on Schedule E, or o Copies of the current lease agreement(s) and Form 998/216 (Operating Income Statement), on a purchase transaction, or when the borrower can document a qualifying exception NOTE: Form 1007, the Single Family Comparable Rent Schedule, is used for one-unit properties, and is provided in conjunction with the applicable appraisal report. Form 1025, the Small Residential Income Property Appraisal Report, is used for two- to four-unit properties. Rental Income from Property Other Than the Subject One of the following items will be required to document rental income from properties other than the subject: Last year’s federal income tax returns, with a history of receiving rents on Schedule E, or Copies of the current lease agreement(s), if the borrower can document a qualifying exception Back to Top 04.03.2015 52 Conventional Underwriting Guidelines | Employment/Income Conversion of Principal Residence Requirements When the borrower’s current primary residence is being converted to a second home or an investment property, detailed requirements must be manually applied. Follow the link to Fannie Mae’s Selling Guide for direction. Partial or No Rental History on Tax Returns (Qualifying Exceptions) If the borrower is able to document (per the table below) that the rental property was not in service the previous tax year, or was in service for only a portion of the previous tax year, MiMutual may determine qualifying rental income by using: Schedule E income and expenses, and annualizing the income (or loss) calculation, or Lease agreement(s) to determine the gross rental income to be used in the net rental income (or loss) calculation If… Then… If the property was acquired during confirm the purchase date using the HUD-1 Settlement Statement or subsequent to the most recent or other documentation. tax filing year, If acquired during the year, Schedule E (Fair Rental Days) must confirm a partial year rental income and expenses (depending on when the unit was in service as a rental). If acquired after the last tax filing year, Schedule E will not reflect rental income or expenses for the property. If the rental property was out of Schedule E will reflect the costs for renovation or service for an extended period, rehabilitation as repair expenses. Additional documentation may be required to ensure that the expenses support a significant renovation that supports the amount of time that the rental property was out of service. Schedule E (Fair Rental Days) will confirm the number of days that the rental unit was in service, which must support the unit being out of service for all or a portion of the year. This policy may be applied to refinances of a subject rental property or to other rental properties owned by the borrower. Back to Top 04.03.2015 53 Conventional Underwriting Guidelines | Employment/Income Offsetting Monthly Obligations for Rental Property Reported through a Partnership or an S Corporation If the borrower is personally obligated on the mortgage debt (as evidenced by inclusion of the related mortgage(s) on the credit report) and gross rents and related expenses are reported through a partnership or S corporation, the business tax returns may be used to offset the property’s PITIA. The steps described below should be followed: Obtain the borrower’s business tax returns, including IRS Form 8825 for the most recent year. Evaluate each property listed on Form 8825, as shown below: o From total gross rents, subtract total expenses. Then add back insurance, mortgage interest, taxes, homeowners’ association dues (if applicable), depreciation, and non-recurring property expenses (if documented accordingly). o Divide by the number of months the property was in service. o Subtract the entire PITIA (proposed for subject property or actual for real estate owned) to determine the monthly property cash flow. If the resulting net cash flow is positive, the lender may exclude the property PITIA from the borrower’s monthly obligations when calculating the debt-to-income ratio. If the resulting net cash flow is negative (that is, the rental income derived from the investment property is not sufficient to fully offset the property PITIA), the calculated negative amount must be included in the borrower’s monthly obligations when calculating the debt-to-income ratio. In order to include a positive net rental income received through a partnership or an S corporation in the borrower’s monthly qualifying income, MiMutual must evaluate it according to guidelines for income received from a partnership or an S corporation. Back to Top (Remainder of page intentionally left blank) 04.03.2015 54 Conventional Underwriting Guidelines | Employment/Income Timing of Tax Returns When using tax returns to verify income, the following documentation requirements will apply. Only income that can be verified via 4506T can be used for qualifying. In cases where the 4506T results are unable to be obtained due to taxes having been recently filed, the IRS response to the request must reflect “No Record of Return Found”. In these cases, the following options are available, and can be considered as “verified” for qualification purposes: Copies of the most recent year’s signed return, stamped as received and signed by the borrower’s local IRS office. If tax returns were filed by a licensed CPA, it is acceptable to obtain a letter, along with copies of the tax returns directly from the CPA, confirming returns have been filed with the IRS. NOTE: Large increases in income that cannot be validated through a tax transcript may only be considered for qualifying on a case-by-case basis, and are subject to underwriter discretion. Additional Documentation Requirements When using tax returns to verify income, and it is between the tax filing date (typically April 15 th) and the extension expiration date (typically October 15th), the borrower must provide: o Copy of the filed extension. MiMutual will review the total tax liability reported on IRS Form 4868 (Extension to File) and compare it with the borrower’s tax liability from the previous two years as a measure of income source stability and continuance. An estimated tax liability that is inconsistent with previous years may make it necessary for MiMutual to require the current returns in order to proceed. o Current year Profit & Loss Statement, executed by the borrower o Year-End Profit & Loss Statement for prior year, executed by the borrower o Tax returns for the previous 2 years After the tax return extension expiration date, loan is not eligible without prior year tax returns When tax returns provided were filed within 90 days of the application date and reflect that the borrower had underpaid throughout the year, proof of payment and source of funds are required to document that the tax liability has been fully satisfied. Any excessive tax liability outside of 90 days is subject to underwriter discretion. Use of IRS Forms to Obtain Federal Income Tax Information When federal income tax information is used to document income for qualifying purposes, MiMutual will obtain transcripts of the applicable federal income tax documents directly from the IRS by using IRS Form 4506–T. However, in certain instances, copies of the actual returns, schedules, or forms are needed because the tax return transcripts will not provide the detail required to qualify the borrower. For example, MiMutual must obtain copies of Schedules B through F, Schedule K-1, Form 2106, or business returns. These schedules or forms are not required if: The income reflected on the applicable schedule transcripts is positive, and The income supported by that schedule or form is not being used for qualifying. Back to Top 04.03.2015 55 Conventional Underwriting Guidelines | Assets Assets Borrower’s Own Funds to Close MiMutual follows AUS findings for acceptable documentation. All documentation must be from a reasonably reliable third-party source, and must satisfy the requirements of the Ability to Repay Rule. Bank Statements When using most recent two months’ bank statements dated within 60 days of closing, large deposits must be explained and documented. Verification of Deposit Two month average balance must be reflected (current balance must show sufficient funds required). Large increases must be explained and documented with paper trail. MiMutual will investigate accounts opened within 90 days of the application date and account balances that are considerably greater than the average balance reflected on the VOD. HUD-1 from Sale of Current Residence Final HUD-1 from sale of current residence is considered acceptable documentation, if dated within 30 days of loan closing. Retirement Accounts Vested funds from individual retirement accounts (IRA/SEP/Keogh accounts) and tax-favored retirement savings accounts (401(k) accounts) are acceptable sources of funds for downpayment, closing costs, and reserves. MiMutual will verify ownership of the accounts and the borrower’s actual receipt of the funds realized from the liquidation of the assets, if needed to complete the transaction. When funds from retirement accounts are used for reserves, MiMutual does not require the funds to be withdrawn from the account(s). However, caution will be exercised when considering retirement accounts as effective reserves because these accounts often Are in the form of stocks, bonds, or mutual funds; Feature significant penalties for early withdrawals; Allow limited access; or Have vesting requirements. If the retirement assets are in the form of stocks, bonds, or mutual funds, in order to be considered for reserves, the account must be discounted by 30% to account for market volatility. In addition, if the borrower is not at retirement age (typically 59 ½) and will be assessed an early withdrawal penalty, that penalty (10% unless confirmed otherwise) must be added to the discount for a total discount of 40%. If the borrower is at or above retirement age, the additional 10% penalty does not need to be applied. In order to be considered as effective reserves, retirement accounts must be vested and allow withdrawals regardless of current employment status. Back to Top 04.03.2015 56 Conventional Underwriting Guidelines | Assets Large Deposits MiMutual considers large deposits as a single deposit that exceeds 50% of the total monthly qualifying income for the loan. Requirements for evaluating large deposits vary based on the transaction type, as shown below: Refinance Transactions Documentation or explanation for large deposits is not required; however, MiMutual remains responsible for ensuring that any borrowed funds, including any related liability, are considered. Therefore, large deposits on refinance transactions will be evaluated by the underwriter to determine funds deposited were not borrowed. Purchase Transactions If funds from a large deposit are needed to complete the purchase transaction (that is, are used for the downpayment, closing costs, or financial reserves), MiMutual must document that those funds are from an acceptable source. Occasionally, a borrower may not have all of the documentation required to confirm the source of a deposit. In those instances, MiMutual must use reasonable judgment based on the available documentation as well as the borrower’s debt-to-income ratio and overall income and credit profile. Verified funds must be reduced by the amount (or portion) of the undocumented large deposit, and MiMutual must confirm that the remaining funds are sufficient for the downpayment, closing costs, and financial reserves. When MiMutual uses a reduced asset amount, net of the unsourced amount of a large deposit, that reduced amount must be used for underwriting purposes. NOTE: When a deposit has both sourced and unsourced portions, only the unsourced portion must be used to calculate whether or not it must be considered a large deposit. All monies for closing to be supported by bank statement dated within 60 days of closing. Cash Back on Purchases Not allowed; however, items the borrower has paid outside of closing (i.e. appraisal, homeowner’s insurance) may be reimbursable through seller contributions at the time of closing. Borrower must provide satisfactory documentation of payment for these services prior to closing. 04.03.2015 57 Conventional Underwriting Guidelines | Assets Sale of Personal Property Proceeds from the sale of personal property (cars, recreational vehicles, stamps, coins, baseball card collections, etc.) is an acceptable source of funds for the down payment, closing costs and reserves, provided the individual purchasing it is not a party to the transaction in any way. The following must be documented: The borrower’s ownership of the asset The value of the asset as determined by an independent and reputable source. This may be in the form of published value estimates, such as those issued by automobile dealers, philatelic or numismatic associations, or a separate written appraisal by a qualified appraiser with no financial interest in the loan transaction. The transfer of ownership of the asset, as documented by a bill of sale and a copy of funds received from purchaser The borrower’s receipt of the sale proceeds with a copy of the deposit slip and bank statement showing new balances Minimum Reserve Requirements Minimum required reserves vary depending on a number of factors. For detailed direction regarding minimum reserve requirements, please follow the link to Fannie Mae’s Selling Guide. Business Assets Business assets may be an acceptable source of funds for the down payment, closing costs, and financial reserves when a borrower is self-employed and the individual federal income tax returns have been evaluated by MiMutual, including, if applicable, the business federal income tax returns for that particular business (nonSchedule C). The borrower must be listed as an owner of the account and the account must be verified. MiMutual will perform a business cash flow analysis to confirm that the withdrawal of funds for this transaction will not have a negative impact on the business. Back to Top 04.03.2015 58 Conventional Underwriting Guidelines | Assets Gift Funds A borrower of a mortgage loan secured by a principal residence or second home may use funds received as a personal gift from an acceptable donor. Gift funds may fund all or part of the down payment, closing costs, or financial reserves, subject to the Minimum Borrower Contribution Requirements. Gifts are not allowed on an investment property. Acceptable Donors A gift can be provided by: a relative, defined as the borrower’s spouse, child, or other dependent, or by any other individual who is related to the borrower by blood, marriage, adoption, or legal guardianship; or a fiancé, fiancée, or domestic partner. The donor may not be, nor have any affiliation with, the builder, the developer, the real estate agent, or any other interested party to the transaction Gift Documentation Gifts must be evidenced by a letter signed by the donor, called a gift letter. The gift letter must: specify the dollar amount of the gift; specify the date the funds were transferred; include the donor’s statement that no repayment is expected; and indicate the donor’s name, address, telephone number, and relationship to the borrower. When a gift from a relative or domestic partner is being pooled with the borrower’s funds to make up the required minimum cash down payment, the following items must also be included: A certification from the donor stating that he or she has lived with the borrower for the past 12 months and will continue to do so in the new residence. Documents that demonstrate a history of borrower and donor shared residency. The donor’s address must be the same as the borrower’s address. Examples include but are not limited to a copy of a driver’s license, a bill, or a bank statement. Verifying Donor Ability of Funds and Transfer of Gift Funds MiMutual must verify that sufficient funds to cover the gift are either in the donor’s account or have been transferred to the borrower’s account. Acceptable documentation includes the following: a copy of the donor’s check and the borrower’s deposit slip a copy of the donor’s withdrawal slip and the borrower’s deposit slip, a copy of the donor’s check to the closing agent, or a settlement statement showing receipt of the donor’s check. When the funds are not transferred prior to settlement, MiMutual must document that the donor gave the closing agent the gift funds in the form of a certified check, a cashier’s check, or other Official check. NOTE: MiMutual must be able to determine that the gift funds were not provided by an unacceptable source, and were the donor’s own funds. Cash gifts are not allowed. Back to Top 04.03.2015 59 Conventional Underwriting Guidelines | Assets Minimum Borrower Contribution Requirement from Borrower’s Own Funds The table below describes the borrower’s minimum required investment when gift funds are used. LTV, CLTV, or HCLTV Ratio Minimum Borrower Contribution Requirement from Borrower’s Own Funds 80% or less One- to four-unit principal A minimum borrower contribution residence from the borrower’s own funds is not required. All funds needed to close Second home can come from a gift. Greater than 80% One-unit principal residence A minimum borrower contribution (except for high-balance mortgage from the borrower’s own funds is not loans) required. All funds needed to close can come from a gift. Two- to four-unit principal The borrower must make a 5% residences minimum borrower contribution from his or her own funds1. After the Second Home minimum borrower contribution has been met, gifts can be used to High-balance mortgage loans supplement the down payment, closing costs, and reserves. 1 If the borrower receives a gift from a relative or domestic partner who has lived with the borrower for the last 12 months, or from a fiancé or fiancée, the gift is considered the borrower’s own funds and may be used to satisfy the minimum borrower contribution requirement as long as both individuals will use the home being purchased as their principal residence. Gift of Equity A gift of equity refers to a gift provided by the seller of a property to the buyer. The gift represents a portion of the seller’s equity in the property, and is transferred to the buyer as a credit in the transaction. A gift of equity is permitted for principal residence and second home purchase transactions only. The acceptable donor and minimum borrower contribution requirements for gifts also apply to gifts of equity. Mortgage payoff (if any) must reflect no more than 29 days delinquent at time of closing. Any history of major delinquencies (30 days or more) reflected on title or payoff, will require additional information and may not be eligible. Spouse to Spouse purchases are not acceptable except in instances such as divorce, where legal documentation (such as a Divorce Decree) indicates the seller/spouse will be vacating the property. The following documents must be obtained: A signed gift letter (see Gift Funds for criteria), The fully executed purchase agreement reflecting Gift of Equity, and The HUD-1 Settlement Statement listing the Gift of Equity NOTE: Investment property transactions not eligible for gifts of equity. 04.03.2015 60 Conventional Underwriting Guidelines | Assets Downpayment Assistance Programs MiMutual does not have a list of approved Downpayment Assistance Programs. All DAPs must meet agency requirements. MiMutual will not allow any DAP from a provider that requires the lender to be approved. Evidence of how the DAP is funded and a copy of the approval letter containing terms of assistance must be provided. If DAP will result in a “soft/silent 2nd” lien on the subject property, this must be considered in the CLTV calculations. If the DAP is a true gift or grant, see the appropriate section for borrower’s minimum contribution requirements. Collateralized Loans Funds can be borrowed for the total required investment as long as satisfactory evidence is provided that the funds are fully secured by an asset. Such assets may include stocks, bonds, real estate (other than the property being purchased), etc. In addition, certain types of loans secured against deposited funds, such as the cash value of life insurance policies, loans secured by a 401(k) etc. in which repayment may be obtained through extinguishing the asset, do not require consideration of repayment for qualifying purposes. However, in such circumstances, the asset securing the loan may not be included as assets to close or otherwise considered as available to the borrower. An independent third party must provide the borrowed funds. The seller, real estate agent, broker, lender, or other interested third party may not provide such funds. Unacceptable borrowed funds include signature loans, cash advances on credit cards, borrowing against household goods and furniture and other similar unsecured financing. Gift Funds/Grants by Charitable Organizations Gifts administered by charitable organizations are acceptable. The gift from the charitable organization to the homebuyer must meet Fannie Mae requirements and the transfer of funds must be properly documented. Gifts from charitable organizations where the seller makes a contribution are not acceptable. NOTE: Gift funds are not allowed on investment property transactions. Back to Top 04.03.2015 61 Conventional Underwriting Guidelines | Assets Donations from Entities A borrower of a mortgage loan secured by a principal residence may use donated gift or grant funds from acceptable entities to fund all or part of the downpayment, closing costs, or financial reserves subject to the minimum borrower contribution requirements below. Donated gifts and grants are not allowed on a second home or an investment property. Acceptable entities include churches, municipalities, nonprofit organizations (excluding credit unions), a regional Federal Home Loan Bank under one of its affordable housing programs, and public agencies. Minimum Borrower Contribution Requirements The following table describes the minimum borrower contribution requirements for transactions that contain donated gifts or grants: LTV/CLTV/HCLTV Ratio 80% or less Greater than 80% Minimum Borrower Requirements from Borrower's Own Funds 1-4 Unit Principal Residence A minimum borrower contribution from the borrower’s own funds is not required. All funds needed to complete the transaction can come from a donated gift or grant. 1 Unit Principal Residence A minimum borrower contribution (Except for High Balance Mortgage from the borrower’s own funds is not Loans) required. All funds needed to complete the transaction can come from a donated gift or grant.* 2-4 Unit Principal Residences The borrower must make a 5% minimum borrower contribution from High Balance Mortgage Loans his or her own funds. After the minimum borrower contribution has been met, donated gifts or grants can be used to supplement the down payment, closing costs, and reserves.* The donated gift or grant must be documented with either a copy of the letter awarding the gift or grant to the borrower or a copy of the legal agreement that specifies the terms and conditions of the gift or grant. The document must include language indicating that repayment of the gift or grant is not expected, and how the funds will be transferred to the borrower, lender, or closing agent. The transfer of gifts or grants must be documented with a copy of the donor’s canceled check, a copy of the settlement statement showing receipt of the check, or similar evidence. *Check with your MI Company for additional guidelines regarding minimum borrower contribution requirements. Back to Top 04.03.2015 62 Conventional Underwriting Guidelines | Assets Subordinate Financing Subordinate liens must be recorded and clearly subordinate to MiMutual’s first mortgage lien. If a first mortgage is subject to subordinate financing, MiMutual will calculate the LTV, CLTV, and HCLTV ratios. If a lien is being subordinated, MiMutual will require the following: Copy of the Note or HELOC Agreement with terms of financing A fully executed subordination agreement prior to closing, reflecting accurate terms of loan Acceptable Subordinate Financing Types Variable payment mortgages that comply with the details below Mortgages with regular payments that cover at least the interest due, so that negative amortization does not occur Mortgages with deferred payments in connection with employer subordinate financing Mortgage terms that require interest at a market rate NOTE: If financing provided by the property seller is more than 2% below current standard rates for second mortgages, the subordinate financing must be considered a sales concession and the subordinate financing amount must be deducted from the sales price. Unacceptable Subordinate Financing Terms Mortgages with negative amortization (with the exception of employer subordinate financing that has deferred payments) Subordinate financing that does not fully amortize under a level monthly payment plan where the maturity or balloon payment date is less than five years after the note date of the new first mortgage (with the exception of employer subordinate financing that has deferred payments) Subordinate financing that restricts prepayment (that is, subordinate liens with prepayment penalties) Eligible Variable Payment Terms for Subordinate Financing Variable payments for subordinate financing are permitted if the following provisions are met: With the exception of HELOCs, when the repayment terms provide for a variable interest rate, the monthly payment must remain constant for each 12 month period over the term of the subordinate lien mortgage. For HELOCs, the monthly payment does not have to remain constant The monthly payments for all subordinate liens must cover at least the interest due so that negative amortization does not occur Back to Top 04.03.2015 63 Conventional Underwriting Guidelines | Refinance Transactions Refinance Transactions Cash Out Refinances The borrower must have owned the property for more than six months predating the loan application to be eligible for cash-out, with the exception of borrowers who inherit or were legally awarded a property by divorce, separation, or dissolution of a domestic partnership. Loan must also meet Continuity of Obligation requirements, unless one of the following conditions are met: The borrower was added to title 24mos or more prior to the application date of the new loan, or There is no existing mortgage on the subject property as a result of the borrower either having purchased the subject property with cash, or having paid off any prior mortgage for which the borrower was an obligor Additional Underwriting and Eligibility Criteria 04.03.2015 Maximum cash to borrower is: o $250,000 (if < 680 score) o Unlimited (if ≥ 680 score) The mortgage being refinanced must be current for the month due, e.g., a refinance of a mortgage anytime in March must have had the February payment made (borrowers who are delinquent or in arrears under the terms and conditions of their mortgage are not eligible). Subordinate liens, including credit lines, regardless of when taken, may remain outstanding (but subordinate to the FNMA mortgage) and are subject to the following CLTV limits: o 85% if underwritten with DU v9.1 o 80% if underwritten with DU v9.2 A copy of the current note is required and the borrower must qualify with the scheduled monthly payments. A subordination agreement will be required. Modified existing subordinate liens are acceptable and are not considered a new subordinate lien. New subordinate liens may be placed behind the FNMA mortgage and are subject to the following CLTV limits: o 85% if underwritten with DU v9.1 o 80% if underwritten with DU v9.2 The borrower must qualify with the scheduled monthly payments. Cash out transactions where the property is listed for sale require the MLS to be cancelled at least six months prior to the application date or the loan is subject to a maximum 70% LTV. In all circumstances, listing agreements must be cancelled prior to the loan application. The listing agreement, evidence of cancellation, and signed/dated explanation from the borrower with the reason why the property was for sale is required at the time of loan submission. These properties pose an increased risk to MiMutual, and therefore may be subject to additional documentation and/or limitations. It is acceptable to finance the payment of closing costs, points, and prepaid items. The borrower can include prepaid real estate taxes in the new loan amount if those taxes are due within the 60 days prior to or 60 days following the closing date of the new loan. Delinquent real estate taxes (taxes past due by more than 60 days) can also be included in the new loan amount, but if they are, an escrow account must be established, subject to applicable law or regulation. Cash out refinance transactions involving land contracts are not eligible Back to Top 64 Conventional Underwriting Guidelines | Refinance Transactions Rate & Term Refinances/Limited Cash Out There is not a minimum length of time the borrower must have owned the property. The current appraised value may be used to calculate LTV. Also see Continuity of Obligation. Existing Debt Add together the amount of the existing first lien, any purchase money second mortgage (any HELOC or second mortgage not used as purchase money must be treated as a cash-out). MiMutual will document that the entire amount of the subordinate financing was used to acquire the property. Refinances to Buy Out an Owner’s Interest A transaction that requires one owner to buy out the interest of another owner (for example, as a result of a divorce settlement or dissolution of a domestic partnership) is considered a limited cash-out refinance if the secured property was jointly owned for at least 12 months preceding the disbursement date of the new mortgage loan. Except in the case of recent inheritance of the subject property, documentation must be provided to indicate that the security property was jointly owned by all parties for at least 12 months preceding the disbursement date of the new mortgage loan. NOTE: The specified equity to be paid is considered property-related indebtedness and is eligible for inclusion in calculating the new mortgage. The divorce decree or settlement agreement must be provided to document the equity awarded to the ex-spouse or co-borrower Additional Underwriting and Eligibility Criteria The mortgage being refinanced must be current for the month due, e.g., a refinance of a mortgage any time in March must have had the February payment made (borrowers who are delinquent or in arrears under the terms and conditions of their mortgage are not eligible). Subordinate liens, including credit lines, regardless of when taken, may remain outstanding and subject to 95% CLTV (or 97% if borrower qualifies for Expanded LTV/CLTV/HCLTV program). A copy of the current note is required and the borrower must qualify with the scheduled monthly payments. A subordination agreement will be required. New subordinate liens may be placed behind the 1st mortgage and are subject to 95% CLTV (or 97% if borrower qualifies for Expanded LTV/CLTV/HCLTV program). The borrower must qualify with the scheduled monthly payments. At closing the borrower may not receive cash back in excess of $2000 or 2% of loan amount. Rate/term refinances where the property is listed for sale require the MLS to be cancelled prior to loan application date. The listing agreement, evidence of cancellation, and signed/dated explanation from the borrower with the reason why the property was for sale is required at the time of loan submission. These properties pose an increased risk to MiMutual; therefore, may be subject to additional documentation and/or limitations. It is acceptable to finance the payment of closing costs, points, and prepaid items. The borrower can include prepaid real estate taxes in the new loan amount if those taxes are due within the 60 days prior to or 60 days following the closing date of the new loan. If such taxes are included in the new loan amount, an escrow account must be established, subject to applicable law or regulation. If an escrow account is not being established, the loan must be considered as a cash out refinance. Back to Top 04.03.2015 65 Conventional Underwriting Guidelines | Refinance Transactions Loan Seasoning HUD-1 required from any transaction within the last 6 months. If the last transaction on the property was a cash-out refinance within the last six months (regardless of the LTV), the new mortgage must be considered a cash-out refinance. Note date to note date is what is used to calculate the six months. Property Seasoning The date on the Certificate of Occupancy will determine “new construction/less than 1 year old” versus “existing construction” Property Seasoning (Assuming Continuity of Obligation Has Been Met) No Cash Out/Limited Cash Out There is not a minimum length of time the borrower must have owned the property; the current appraised value may be used to calculate LTV. See Continuity of Obligation for further seasoning requirements. However, if the borrower refinanced within 6 months predating the loan application, the HUD-1 from the last refinance must be obtained. If the last transaction was a cash-out transaction then the new mortgage must be treated as a cash-out refinance. Cash-Out The borrower must have owned the property for more than six months predating the loan application to be eligible for cash-out. NOTE: The date on the Certificate of Occupancy will determine “New Construction/Less than 1 Year Old” versus “Existing Construction”. Mortgage Payoffs All refinance transactions will require current payoff statements for all liens on title to reflect the loan is current at time of closing (should not reflect more than 59 days of interest). However, paying off an existing FHA loan, where it is permitted for the servicer to collect a full 30 days of interest if payment in full is received after the required monthly payment due date, may result in a full two months’ worth of interest on the payoff. As long as the mortgage is current, this would be considered acceptable. MiMutual does not refinance loans that have been modified (due to hardship), have forbearance agreements in place, or with restructured/short payoffs. Back to Top 04.03.2015 66 Conventional Underwriting Guidelines | Refinance Transactions Texas Refinances When refinancing a loan in Texas, it first has to be determined whether or not the property is eligible for max financing based on the borrower’s current liens. A Texas cash out refinance is typically referred to as a 50(a)(6). There are 2 different ways a property can be subject to Texas Article XVI, Section 50(a)(6): If the borrower will receive any amount of cash out from the refinance, even if it is of an incidental amount, or If the borrower has ever completed a cash-out refinance on the subject property before, or has secured a non-purchase money second, even if the current transaction is only a rate/term refinance. Once a Texas Equity Loan, always a Texas Equity Loan. Because incidental cash back to the borrower is not permitted on a rate/term refinance in Texas, MiMutual considers the following practices unacceptable: Including Fees Paid Outside of Closing in the Loan Amount Per Texas requirements, a fee that is paid outside of closing cannot be financed into the loan amount. When cash back is considered a refund for fees paid outside of closing (POC), MiMutual has essentially financed POC fees into the new loan amount. Additionally, MiMutual requires that in order for fees to be included in the loan amount, the fee must be reasonable, incurred, and be a necessary closing cost (i.e. required to close the transaction). Principal Curtailments/Reductions Applying a principal curtailment/reduction (normally the amount of the POC fees) results in a reduction to the principal amount of the loan as listed on the HUD; however, the principal amount of the loan as listed on the loan documents – the amount the borrower is obligated to pay – has not been reduced. Increasing Payoff Amounts for the Purpose of Reducing Cash Back Reducing cash back to the borrower by increasing payoff amounts on the HUD results in prohibited cash back to the borrower in the form of a payoff refund. MiMutual does not allow Texas 50(a)(6) transactions. MiMutual will only approve purchases, and rate/term refinance loans in Texas where the borrower has never taken equity from the property. Back to Top 04.03.2015 67 Conventional Underwriting Guidelines | Refinance Transactions Delayed Financing Exception Borrowers who purchased the subject property within the past six months (measured from the date on which the property was purchased to the application date of the new mortgage loan) may be eligible for a cash out refinance, as an exception, if all of the following requirements are met: The original purchase transaction was an arms-length transaction The borrower(s) meet all general eligibility requirements. The borrower(s) may have initially purchased the property as one of the following: o A natural person, o An eligible inter vivos revocable trust, when the borrower is both the individual establishing the trust and the beneficiary of the trust, o An LLC or partnership in which the borrower(s) have an individual or joint ownership of 100% The original purchase transaction is documented by a HUD-1 Settlement Statement, which confirms that no mortgage financing was used to obtain the subject property. (A recorded trustee’s deed [or similar alternative] confirming the amount paid by the grantee to trustee may be substituted for a HUD-1 if a HUD-1 was not provided to the purchaser at time of sale). The preliminary title search or report must confirm that there are no existing liens on the subject property. The sources of funds for the purchase transaction are documented (such as bank statements, personal loan documents, or a HELOC on another property) If the source of funds used to acquire the property was an unsecured loan or a loan secured by an asset other than the subject property (such as a HELOC secured by another property), the HUD-1 for the refinance transaction must reflect that all cash out proceeds be used to pay off or pay down, as applicable, the loan used to purchase the property. Any payments on the balance remaining from the original loan must be included in the debt-to-income ratio calculation for the refinance transaction. Funds received as gifts and used to purchase the property may not be reimbursed with proceeds of the new mortgage loan. The new loan amount can be no more than the actual documented amount of the borrower’s initial investment in purchasing the property plus the financing of closing costs, prepaid fees, and points on the new mortgage loan (subject to the maximum LTV/CLTV/HCLTV ratios for the cash out transaction based on the current appraised value). All other cash out refinance eligibility requirements are met, with the exception of Continuity of Obligation, which need not be applied. Cash out pricing is applicable. NOTE: Standard Exception Policy will apply. The date on the Certificate of Occupancy will determine “New Construction/Less than 1 Year Old” versus “Existing Construction”. Back to Top 04.03.2015 68 Conventional Underwriting Guidelines | Refinance Transactions Continuity of Obligation Continuity of Obligation occurs on a refinance transaction when at least one of the borrower(s) on the existing mortgage is also a borrower on the new refinance transaction secured by the subject property. Requirements for Continuity of Obligation All refinance transactions must either: Comply with the definition above, or Meet one of the permissible exceptions described below, or Comply with the limited eligibility parameters described below Note the following: Continuity of Obligation requirements do not apply when there is no existing mortgage on the subject property as a result of the borrower either having purchased the subject property with cash or when any prior mortgage for which the borrower was an obligor was paid in full. All time period references in this section are measured from the date of the event (for example, transfer of title) and end with the application date of the new refinance transaction Permissible Exceptions to Continuity of Obligation Although the following refinance transactions do not meet the definition of Continuity of Obligation, the new refinance transaction will be eligible and not bound by the limited eligibility parameters described below if any of the following are applicable: The borrower on the new refinance transaction was added to title 24 months or more prior to the application date of the new refinance transaction MiMutual documents that the borrower acquired the property through an inheritance or was legally awarded the property (for example, divorce, separation, or dissolution of a domestic partnership). There is no minimum waiting period with regard to when the borrower acquired the property before completing a new refinance transaction The borrower on the new refinance transaction has been added to title through a transfer from a trust, or a limited liability company (LLC), or partnership. The following requirements apply: o The borrower must have been a beneficiary/creator (trust) or a 25% or more owner of the LLC or partnership prior to the transfer, and o The transferring entity and/or the borrower has had a consecutive ownership (on title) for at least the most recent 6 months prior to disbursement of the new loan NOTE: Transfer of ownership from a corporation to an individual does not meet the Continuity of Obligation requirement. The borrower has been on title for at least 12 months but is not obligated on the existing mortgage(s) that is being refinanced and the borrower meets at least one of the following requirements: o Has been residing in the property for at least 12 months, o Has paid the mortgage for at least 12 months, or o Can demonstrate a relationship with the current obligor (for example, relative or domestic partner) Back to Top 04.03.2015 69 Conventional Underwriting Guidelines | Refinance Transactions All Other Refinance Transactions – Limited Eligibility All other refinance transactions that do not meet either the continuity of obligation requirements or a permissible exception must comply with the following LTV/CLTV/HCLTV ratio restrictions, regardless of the occupancy of the property. The LTV/CLTV/HCLTV ratios must be based on the current appraised value. Months on Title < 6 months ≥ 6 months, < 24 months ≥ 24 months Eligibility Requirements Ineligible Limited to 50% LTV/CLTV/HCLTV No additional restrictions Subordinate Financing Subordinate liens must be recorded and clearly subordinate to MiMutual’s first mortgage lien. If a first mortgage is subject to subordinate financing, MiMutual will calculate the LTV, CLTV, and HCLTV ratios. If a lien is being subordinated, MiMutual will require the following: Copy of the Existing Note or HELOC Agreement with terms of financing A fully executed subordination agreement prior to closing, reflecting accurate terms of loan If the credit line is being reduced with a borrower pay down, a fully executed Modification agreement is to be provided (only in cases where the line has to be paid down to meet HCLTV/CLTV requirements) Follow the links for more information on Acceptable Subordinate Financing Types and Unacceptable Subordinate Financing Terms. Defining Refinance Transactions Based on Subordinate Lien Payoff The table below provides the underwriting considerations related to subordinate financing under refinance transactions: Refinance Transaction Includes Payoff of the First Lien and... The payoff of a purchase money second with no cash out The payoff of a non-purchase money second, regardless of whether additional cash out is taken The subordinate financing is being left in place, regardless of whether the subordinate financing was used to purchase the property, and the borrower is not taking cash out except to the extent permitted for a limited cash out refinance transaction The subordinate financing is being left in place, regardless of whether the subordinate financing was used to purchase the property, and the borrower is taking cash out 04.03.2015 Then MiMutual will underwrite the transaction as a... Comments Limited cash out refinance n/a Cash out refinance n/a Limited cash out refinance The subordinate lien must be resubordinated to the new first mortgage loan Cash out refinance 70 Conventional Underwriting Guidelines | Refinance Transactions Cash Out and Principal Curtailments Principal Curtailments due to an excess premium from the Lender Credit, or to correct the amount of cash back to the borrower, are permitted. The matrix below describes maximum cash out requirements and allowable curtailments. Product FNMA DU Refi Plus Limited Cash Out Refinance Maximum Cash to Borrower Maximum Principal Curtailment Due to changes in payoff figures, closing costs, etc. $250 $500 2% or $2000 Maximum Premium Pricing Curtailment 1% of the loan amount or $2000, whichever is less Closing costs paid out of the borrower’s own funds may be reimbursed at closing and are not considered cash out. When a principal curtailment is permitted, all excess amounts must be clearly reflected on the HUD-1 as a principal reduction. Back to Top 04.03.2015 71 Conventional Underwriting Guidelines | Purchase Transactions Purchase Transactions Residential Purchase Agreement All purchase transactions require this document to be executed by ALL parties. The current owner of record must execute as the seller of subject property. All borrowers on the loan application must sign the agreement. All sellers that sign the purchase agreement must be authorized by that entity. If any changes to the purchase agreement occur, see Revisions Due to Sales Contract Amendments. Earnest Money Deposit (EMD) The Earnest Money Deposit must be verified (deposit amount and source of funds) regardless of the amount. If the Earnest Money Deposit is not verifiable, the borrower(s) should not be given any credit for it in the transaction or on the HUD-1 Settlement Statement. Short Sales MiMutual will accept purchase transactions where the seller is selling the home under a “short sale” agreement with their current lender. MiMutual must be given the fully executed short sale approval letter and the requirements set forth by the current lender must be met prior to closing. Interested Party Contributions Interested Party Contributions (IPCs) are costs that are normally the responsibility of the property purchaser that are paid directly or indirectly by someone else who has a financial interest in, or can influence the terms and the sale or transfer of, the subject property. Maximum IPCs allowed are as follows: Principal Residence or Second Home 6% for LTVs ≤ 90% 3% for LTVs > 90% Investment Property 2% Back to Top 04.03.2015 72 Conventional Underwriting Guidelines | Purchase Transactions Property Seasoning The date on the Certificate of Occupancy will determine “new construction/less than 1 year old” versus “existing construction”. Personal Property Any personal property (excluding appliances) transferred with a property sale must be deemed to have zero transfer value, as indicated by the sales contract and appraisal. If any value is associated with the personal property, the sales price and appraised value must be reduced by the personal property value for purposes of calculating the LTV/CLTV/HCLTV. Identity of Interest Transactions/Non-Arm’s Length Transactions Non-arm's length transactions are purchase transactions in which there is a relationship or business affiliation between the seller and the buyer of the property. Fannie Mae allows non-arm’s length transactions for the purchase of existing properties unless specifically forbidden for the particular scenario, such as delayed financing. For the purchase of newly constructed properties, if the borrower has a relationship or business affiliation (any ownership interest, or employment) with the builder, developer, or seller of the property, Fannie Mae will only purchase mortgage loans secured by a principal residence. Fannie Mae will not purchase mortgage loans on newly constructed homes secured by a second home or investment property if the borrower has a relationship or business affiliation with the builder, developer, or seller of the property. Borrower Acting as an Interested Party A borrower may act as an interested party to a sales transaction for the subject property; however, the borrower may not use any payment for services rendered from the sales transaction of the subject property towards the down payment, closing costs and/or reserve requirements. (Payment for services rendered includes, but is not limited to: realtor commissions, broker commissions, sales associates’ commissions). NOTE: Non-Arm’s Length transactions may require additional documentation, depending on the underwriter's assessment of the overall risk of the loan. Determining Property Taxes on New Construction Dwellings On newly-constructed properties, realistic estimates of the property taxes that reflect the value of the improvements once they are assessed by the units of government to which those taxes are paid must be used. Such estimates may be obtained from reliable sources such as the appraiser, comparable sales data, or the assessor’s office. Back to Top 04.03.2015 73 Conventional Underwriting Guidelines | Purchase Transactions Seller Utilizing a Relocation Company When the seller enlists the assistance of a Relocation Company for the sale of the subject property, the relocation agreement must always be reviewed by MiMutual prior to closing. There are multiple ways the transaction can be consummated, and it is very important to have a clear understanding of which of the below-mentioned methods is being used. Relocation Company Takes Power of Attorney The most common circumstance is where the Relocation Company signs the purchase agreement as the seller, and will sign the closing documents on behalf of the vested owner. In this instance, a Power of Attorney executed by the vested owner(s), authorizing the relocation company to sign on their behalf (the vested owner will reflect as the seller on the HUD-1 statement) will be required. The Power of Attorney must be executed and dated prior to the execution of the purchase agreement (unless the relocation agreement states that a Power of Attorney will be prepared to consummate the closing). There must be documentation allowing someone else the right to sell the property. Double Escrow Another common occurrence involving relocation companies is where the Relocation Company will actually be the seller reflected on the HUD-1 settlement statement. In this circumstance, the title commitment should have a requirement for the current vested owners to deed the property to the Relocation Company, and another requirement for the Relocation Company to deed the property to our borrower. This is the only time a “double escrow” is acceptable, and not considered property flipping. Relocation Company Acts as Seller without Taking Title In certain geographical areas (i.e. Michigan), it may be common practice for the Relocation Company to negotiate and execute the purchase agreement and HUD-1 at closing as the seller, and to receive the proceeds from the sale of the property without actually taking title. This option is acceptable only if all of the following fully executed documents are reviewed and approved by the underwriter prior to closing: Warranty Deed Reflecting the Vested Owner with Buyer Info Left Blank: This is a deed executed by the vested owners, which is held in escrow by the title company until a buyer is found and the sale is closed. Appointment of Special Agent and Assignment of Proceeds: This document is executed by the vested owner authorizing the Title Company/Closing Agent to complete the appropriate information on the blank deed and other pertinent documentation. This also directs the Title Company/Closing Agent to allow the Relo Company to receive all proceeds. Special Power of Attorney: This document is executed by the vested owner authorizing the Relo Company to sign/execute all documents necessary to consummate the sale (i.e. Purchase Agreement, closing docs, etc.). This document should also reference the blank deed that will be completed when a buyer is found and the sale is closed. Relocation Agreement: This is the agreement between the vested owner and the Relo Company that will describe the terms of the sale of the subject property. This document is essential in determining the legitimacy of the transaction to avoid potential unethical property flipping schemes. Back to Top 04.03.2015 74 Conventional Underwriting Guidelines | Expanded LTV/CLTV/HCLTV Expanded LTV/CLTV/HCLTV Fannie Mae is providing new options to serve creditworthy borrowers and expand opportunities. Using Desktop Underwriter, mortgages for sustainable homeownership are able to be underwritten safely and responsibly. Effective for loan casefiles underwritten through DU v9.2, which will be implemented the weekend of December 13, 2014, LTV ratios greater than 95% up to a maximum of 97% will be allowed for: Standard purchase transactions, if at least one borrower is a first time homebuyer Standard limited cash out refinances of existing Fannie Mae loans Purchase Transactions The requirements for purchase transactions are in the following table: Purchase Transactions LTV/CLTV/HCLTV Ratios Loan Type Property and Occupancy Borrower Eligibility Underwriting Method Homebuyer Education and Counseling Minimum Borrower Contribution Mortgage Insurance Coverage Reserves Other LTV: 95.01 to 97% CLTV: 95.01 to 97% if the subordinate lien is not a Community Seconds loan 105% if the subordinate lien is a Community Seconds loan HCLTV: 95.01 to 97% Fixed rate loans with terms up to 30 years *High Balance and ARM loans are not permitted One unit principal residences only. At least one borrower must be a first time homebuyer, as indicated on the Uniform Residential Loan Application (Form 1003) in Section VIII, when at least one borrower responds “No” to Declaration M: Have you had an ownership interest in a property in the last three years? *There are no income limit requirements DU only Not required Standard contribution requirements apply 35% Reserve requirements will be determined by DU. Reserves may come from eligible gifts All other MiMutual guidelines and policies apply Back to Top 04.03.2015 75 Conventional Underwriting Guidelines | Expanded LTV/CLTV/HCLTV Limited Cash Out Refinance Transactions The increased LTV/CLTV/HCLTV ratios will be permitted for standard limited cash out refinance transactions if Fannie Mae is the owner of the existing loan. These requirements are not applicable to DU Refi Plus loans. The requirements are in the following table: Limited Cash Out Refinance Transactions MiMutual must document that the existing loan being refinanced is owned (or securitized) by Fannie Mae. Documentation may come from: MiMutual’s servicing system, The current servicer (if MiMutual is not the servicer), Fannie Mae’s Loan Lookup tool, or Any other source as confirmed by MiMutual Existing Loan LTV/CLTV/HCLTV Ratios Loan Type Property and Occupancy Underwriting Method Mortgage Insurance Coverage Other “Fannie Mae” must be indicated in the Owner of Existing Mortgage field on the loan application. Because this indication will be used by DU to determine eligibility of the loan for delivery to Fannie Mae when the LTV, CLTV, or HCLTV exceed 95%, MiMutual is required to document the loan being refinanced is currently owned by FNMA. *The Owner of Existing Mortgage field will not impact the underwriting of DU Refi Plus casefiles. DU will continue to determine eligibility for DU Refi Plus loans. LTV: 95.01 to 97% CLTV: 95.01 to 97% if the subordinate lien is not a Community Seconds loan 105% if the subordinate lien is a Community Seconds loan HCLTV: 95.01 to 97% Fixed rate loans with terms up to 30 years *High Balance and ARM loans are not permitted One unit principal residences only. DU only 35% All other standard limited cash out refinance policies apply Back to Top 04.03.2015 76 Conventional Underwriting Guidelines | Private Mortgage Insurance Private Mortgage Insurance (PMI) MiMutual will allow certain loans to exceed 80% LTV with Private Mortgage Insurance (PMI), providing the borrowers meet the guidelines of the MI Company (in addition to MiMutual’s standard guidelines). Minimum Credit Score 660 Transaction Types Purchase Rate/Term Refinance Coverage Options Borrower-Paid Zero Option Monthly Premium – Standard Coverage only Borrower-Paid Single Premium – Standard Coverage only *Cannot be financed Lender-Paid Single Premium Lender-Paid Single Premium on High Balance Loans Points and Fees Restriction Certain MI premiums require inclusion in the 3% restriction on points and fees, effective with the QM Rule on January 10, 2014. The following MI options are not included in the points and fees calculation: All borrower-paid monthly premiums All lender-paid premiums The following MI options are required to be included in the points and fees calculation: All borrower-paid single premiums, whether refundable or non-refundable. *Single premiums up to the FHA premium rate (currently 1.75%) are not excluded NOTE: MiMutual does not offer borrower-paid annual premiums, lender-paid monthly premiums, or split premium mortgage insurance. Back to Top 04.03.2015 77 Conventional Underwriting Guidelines | General Provisions General Provisions Documentation Requirements All documentation must be from a reasonably reliable third-party source, and must satisfy the requirements of the Ability to Repay Rule. Citizenship Citizenship of the United States is not required for eligibility. Borrowers must be one of the following: a U.S. Citizen, a lawful Permanent Resident Alien, or a lawful Non-Permanent Resident Alien. We will lend under the same terms and conditions for all three designations. A mortgage to a non-U.S. citizen who has no lawful residency status in the United States is not eligible. Permanent Resident Aliens Non-United States Citizens who hold acceptable evidence of permanent residency issued by the U.S. Citizenship and Immigration Services (USCIS) are considered Permanent Resident Aliens. Lawful Permanent Resident Aliens must have any of the following: A legible copy of the front and back of the Permanent Resident Card / Alien Registration Card (USCIS Form I-551) otherwise known as a “Green Card”. While the Green Card itself states “Do Not Duplicate” for the purpose of replacing the original card, U.S. Citizenship and Immigration Services (USCIS) allow photocopying of the Green Card. Making an enlarged copy or copying on colored paper may alleviate any concerns the borrower may have with photocopying. A legible copy of the unexpired foreign passport that contains an unexpired stamp reading “Processed for I-551. Temporary Evidence of Lawful Admission for Permanent Residence. Valid until (MM-DD-YY). Employment authorized”. Any other evidence of permanent residency issued by the USCIS. Non-Permanent Resident Aliens Non-United States Citizens who are permitted to reside in the United States on a temporary basis and may have been granted authorization to work in the U.S. by the U.S. Citizenship and Immigration Services (USCIS) are considered Non-Permanent Resident Aliens. Lawful Non-Permanent Resident Aliens must have the following: A legible copy of a valid (unexpired), acceptable visa - a copy of valid work permit only is unacceptable. The Visa must evidence one of the following Visa classes: o A Series (A-1, A-2, A-3) o E-1 o G Series (G-1, G-2, G-3, G-4, G-5) o H-1B, H-2A, H-2B, H-3 o L-1 o O-1A, O-1B, O2 o TN, TC – See NAFTA below NOTE: Non-Permanent Resident Aliens with Temporary Protected Status are not eligible. Back to Top 04.03.2015 78 Conventional Underwriting Guidelines | General Provisions Additional Immigration Status Loans to non-citizens who have been granted political asylum require underwriting to Non-Permanent Resident Aliens guidelines. Asylees and refugees must provide their Arrival and Departure Records (Form I-94) and copies of their employment authorization documents. A grant of asylum is for an indefinite period. North American Free Trade Agreement (NAFTA) Workers Canadian and Mexican citizens who are working in the United States under the terms of NAFTA must be treated as Non-Permanent Resident Aliens when determining their eligibility. They must meet the standard requirements established for Non-Permanent Resident Aliens. NAFTA workers must provide a NAFTA Worker’s Visa (see above TN and TC Visa classifications). Diplomatic Immunity Due to the inability to compel payment or seek judgment, transactions with individuals who are not subject to United States jurisdiction are not eligible. This includes embassy personnel with diplomatic immunity. Verification the borrower does not have diplomatic immunity will be determined by reviewing the visa, passport, or the U.S. Department of State’s Diplomatic List, at www.state.gov/s/cpr/rls/dpl/ (then click “search list”). Social Security Number A valid Social Security Number is required for all borrowers. Evidence of social security number must be provided in each case file. Individual Tax Identification Number (ITIN) is not acceptable. Translated Documents All documents of foreign origin must be filled out in English, or a complete and accurate translation from an acceptable source must be provided for each document. Back to Top (Remainder of page intentionally left blank) 04.03.2015 79 Conventional Underwriting Guidelines | General Provisions Legal Name Each borrower must use their legal name when applying for a mortgage. Review the following list of documents to ensure the borrower’s name is consistent: Loan application (1003) Credit Report DU/LP findings MiMutual requires that all pertinent loan documentation be prepared in the borrower’s legal name. In most cases the name reflected on the driver’s license is utilized to determine the borrower’s legal name. However, in those instances where there is a variance between the driver’s license, Social Security card, income, and asset documents, the underwriter will exercise due diligence to determine all documents belong to one and the same person. Married Names If a borrower has recently married or is married during loan processing, the new married name, if applicable, will be utilized for all pertinent loan documentation. MiMutual will require a copy of the marriage license if the new name is not reflected on both the driver’s license and the social security card. NOTE: In all of the above cases, an AKA/FKA affidavit containing all name variations will be required at closing. Maximum Number of Financed Properties/Multiple Properties When multiple properties are owned, all mortgages must be current at time of closing. Also, If borrower is purchasing a new home (as owner occupied); however, is not selling current residence, MiMutual may consider the subject as non-owner occupied if the value of the subject is not greater than current residence (case by case). The borrower(s) can have no more than four properties financed including the subject property, and the maximum number of properties owned (financed or not) cannot exceed ten. To determine how to apply the limitations based on the type of property ownership, reference the table in FNMA’s Selling Guide. Maximum Number of Borrowers Allowed MiMutual does not allow any greater than 4 borrowers on a single loan. Age of Borrower There is no maximum age limit for a borrower. The minimum age is 18. Back to Top 04.03.2015 80 Conventional Underwriting Guidelines | General Provisions Power of Attorney MiMutual allows a Power of Attorney (POA) under the following criteria: Application, initial disclosures, and Purchase Agreement (if applicable) must be signed by all parties on the loan Subject property must be owner-occupied All signatures on the POA must be notarized, and the POA must be reviewed by a MiMutual underwriter prior to closing. Signatures on the POA must match the signatures in the file to MiMutual’s satisfaction. The POA must be specific to the loan transaction with MiMutual, and include the full property address of the subject The title policy must not make any exceptions based on the use of the POA NOTE: For properties located in Florida, all Powers of Attorney executed after October 1, 2011 are required to be signed by a Notary Public and two witnesses. Rescission MiMutual will not waive a borrower's three-day right to rescind. No exceptions. Tax and Insurance Escrows Escrows for taxes and insurance are required for all loans with an LTV in excess of 80%. Escrow waivers are only permitted for loans with LTVs ≤ 80% (with the exception of properties in California, where escrow waivers are permitted up to 89.99% LTV, and properties in New Mexico, where escrow waivers are only permitted up to 79.99%). Loans with delinquent taxes that are being paid with loan proceeds (cash out refinances) are not eligible for an escrow waiver. Partial Escrow Policy Where a borrower qualifies for an escrow waiver, MiMutual will allow a borrower to escrow property taxes only, and not escrow for hazard insurance. This selection must be made prior to closing, or redisclosure will be required and the closing will be delayed. Flood Insurance MiMutual requires flood insurance for all properties that are located within a flood zone. If flood insurance is not available in certain flood hazard areas because the community does not participate in the National Flood Insurance Program (NFIP), MiMutual will not finance properties located in those areas. Sufficient dwelling coverage must be determined using the same methodology as described in Hazard Insurance below, but may never exceed $250,000 (NFIP maximum). All principal and/or residential detached structures on the mortgaged property must be covered. Back to Top 04.03.2015 81 Conventional Underwriting Guidelines | General Provisions Hazard Insurance MiMutual requires hazard insurance on all properties being financed. For a first mortgage secured by a property on which an individually held insurance policy is maintained, MiMutual requires coverage equal to the lesser of the following: 100% of the insurable value of the improvements, as established by the property insurer; or the unpaid principal balance of the mortgage, as long as it at least equals the minimum amount—80% of the insurable value of the improvements—required to compensate for damage or loss on a replacement cost basis. If it does not, then coverage that does provide the minimum required amount must be obtained NOTE: Unless a higher maximum is required by state law, the maximum deductible is 5% of the policy face amount. Non-Homestead Property Taxes When the subject property is not currently owner-occupied, but it is verified that it will be when the mortgage transaction is complete, the verified amount of homestead property taxes may be used in qualification. This amount can be determined by county information that provides a clear description of the property tax amount once the homestead exemption has been applied. Title Companies/Settlement Agents We do not use an approved title company list. However, we reserve the right to refuse any title company/settlement agent. A loan specific Insured Closing Protection Letter must be received prior to closing, along with specific wiring instructions. Title Requirements Redemption Periods on Title MiMutual will not accept an unexpired redemption period exception on the final title policy. This guidance applies when the seller is an entity other than the individual with redemption rights. Schedule B All exceptions reflected in Schedule B of the preliminary title report that may impact lien position must be addressed and/or cleared to ensure the final title policy will reflect the loan in first lien position Delinquent Property Taxes Any delinquent property taxes being paid at closing on a refinance transaction will be considered a cash-out transaction. Transactions with severely delinquent property taxes (such as those resulting in a tax sale, and therefore being outside of DU’s risk assessment) must be manually underwritten, which MiMutual does not permit on Conventional loans. Back to Top 04.03.2015 82 Conventional Underwriting Guidelines | General Provisions Paying Debt at Closing MiMutual will not allow any debt to be paid at closing on a purchase transaction. Any debt being paid at closing on a refinance (other than existing mortgages on subject property) will be considered a cash-out transaction. Mortgage Payoffs All refinance transactions will require current payoff statements for all liens on title to reflect the loan is current at time of closing (should not reflect more than 59 days of interest). However, when paying off an existing FHA loan, where it is permitted for the servicer to collect a full 30 days of interest if payment in full is received after the required monthly payment due date, may result in a full two months’ worth of interest on the payoff. As long as the mortgage is current, this would be considered acceptable. MiMutual does not refinance loans that have been modified (due to hardship), have forbearance agreements in place, or with restructured/short payoffs. Verifications Verification forms (VOEs / VODs / VORs, etc.) must pass directly between the broker and the provider without being handled or transmitted by any third party or using any third party’s equipment. Verifications must be addressed to the employer or financial institution and may not be directed to an individual (such as may be directed to Account Verification Department or Human Resources but not to John Doe). No document used in the processing or underwriting of a loan may be handled or transmitted by or through the borrower, a real estate agent or any other interested third party to the transaction. The Verification of Deposit (VOD) and Verification of Employment (VOE) may be faxed documents or printed pages from the Internet if they clearly identify their sources (e.g., contain the names of the borrower’s employer or depository/investment firm). The document must contain all headers/footers. Fax transmissions must clearly identify the source and a printed web page also must show its uniform resource locator (URL) address as well as the date it was printed. Age of Documents Credit document expiration dates are listed below unless the nature of the document is such that its validity for underwriting purposes is not affected by being older than the number of prescribed days (e.g. divorce decrees, tax returns). Credit Report - 90 days Paystub – 60 days Written VOE - 90 days VOD/Bank Statement – 60 days (funds to close or reserves) or the most recent statement, if statements are received quarterly, as is typically seen with 401(k) or retirement account statements VOR – 90 days VOM – 30 days Appraisal – 120 days Title Commitment – 90 days Closing Protection Letter – 30 days Back to Top 04.03.2015 83 Conventional Underwriting Guidelines | General Provisions Non-Purchasing Spouse On a purchase transaction, a non-purchasing spouse (or any other party) may appear on the security instrument or otherwise take title to the property at loan settlement. On a purchase or refinance transaction, if required by state law (dower right/homestead states), in order to perfect a valid and enforceable first lien, the non-purchasing spouse may be required to sign either the security instrument or documentation (usually, the mortgage/deed of trust, Truth-In-Lending and Notice of Right to Cancel) evidencing that he or she is relinquishing all rights to the property. If the non-purchasing spouse executes the security instrument for such reasons, he or she is not considered a borrower for our purposes and need not sign the loan application. Where there are non-purchasing spouses who sign security instruments relinquishing their rights to the property pursuant to applicable state laws, these non-purchasing spouses do not have to sign the mortgage note. Signing the security instrument for such purposes does not make the non-purchasing spouse a coborrower. Mortgages in the name of the non-purchasing spouse (the person named on the Note is not our borrower) must be verified as current. Any delinquency on the mortgage history in the most recent 12 months must be evaluated when determining the credit worthiness of the borrower. Electronic Signatures MiMutual can accept eSigned origination documents (application, application disclosures, etc) from an approved vendor once the broker has been approved through our Client Relations department. All loan submissions using eSign must include a Disclosure Tracking Summary or Disclosure Tracking Detail. If the Disclosure Tracking Detail indicate that disclosures were either not delivered in a timely manner to ensure compliance with federal and state regulations, or not in compliance with the eSign Act, the loan is ineligible for delivery to MiMutual. Ineligible Documents for eSignature The following documents require wet signatures: Any closing documents or documents that require notarization or witnesses, including Power of Attorney SSA-89 Borrower’s Certification & Authorization LOX for inquiries Priority Appraisal Credit Card Authorization Back to Top 04.03.2015 84 Conventional Underwriting Guidelines | General Provisions Approved Vendors Trusts Living (“inter vivos”) trusts must comply with local state regulations and the following requirements. To be eligible for financing, the borrower must be: The settlor, or the person who created the trust, and The beneficiary, or the person who is designated to benefit from the trust, and The trustee or the person who will administer the trust for the benefit of the beneficiary, the borrower Eligible Borrowers One or more borrowers with one living trust, or Two or more borrowers with separate living trusts, or Multiple borrowers with one or more holding title as an individual and one or more holding title as a living trust Eligible Properties 1-4 unit primary residences 1 unit second homes Back to Top 04.03.2015 85 Conventional Underwriting Guidelines | General Provisions Required Documentation Attorney’s Opinion Letter from the borrower’s attorney, verifying all of the following: o The trust was validly created and is duly existing under applicable law, o The trust is revocable, o The borrower is the settlor of the trust and the beneficiary of the trust o The trust assets may be used as collateral for a loan, o The trustee is: Duly qualified under applicable law to serve as trustee, Is the borrower, Is the settlor, Is fully authorized under the trust documents and applicable law to pledge or otherwise encumber the trust assets Complete copy of the trust documents certified by the borrower to be accurate, OR a copy of the abstract or summary for jurisdictions that require a lender to review and rely on an abstract or summary of trust documents instead of the trust agreements Exception for Trust Certificate Authorized States In lieu of the Attorney’s Opinion letter and copies of trust documents, the title company Trust Certification is acceptable for the following states: Alabama Kansas New Mexico Tennessee Arizona Maine North Carolina Texas Arkansas Michigan Ohio Vermont California Minnesota Oregon Virginia District of Columbia Missouri Pennsylvania Washington Idaho New Hampshire South Carolina Wyoming The same terms and conditions apply as shown above for the Attorney’s Opinion. NOTE: This exception is not applicable to Jumbo loans. A complete copy of the trust along with an Attorney’s Opinion Letter is required for all Jumbos. Other Title and Closing Requirements The title to the property is vested in the trustee on behalf of the trust (or such other customary practices), Title binder may not contain any exceptions to coverage based on the mortgaged property being held by the living trust, The Note must be executed individually by the settlor and by the trustee on behalf of the trust. The Revocable Trust Rider must be used with the mortgage or Deed of Trust The date of the trust must be reflected on the Note as part of the description below the Trustee’s signature (i.e. Jane Doe, Trustee of the Jane Doe Trust dated April 1, 2000) Ineligible Blind Trusts Life Estates Back to Top 04.03.2015 86 Conventional Underwriting Guidelines | General Provisions LDP/GSA Lists MiMutual will examine HUD’s Limited Denial of Participation (LDP) list and the U.S. General Services Administration’s “List of Parties Excluded from Federal Procurement and Non-procurement Programs” (GSA). The LDP and GSA lists must be checked on all loans. If the name of the broker’s office or loan officer appears on either list, the application is not eligible. The LDP list may be checked by going to www.hud.gov, and the GSA list by going to http://www.epls.gov. Debt-To-Income Ratios Maximum debt ratios are determined by the AUS Credit Card Financing MiMutual permits certain costs that must be paid early in the application process, such as lock-in fees, origination fees, commitment fees, credit report fees, and appraisal fees, to be charged to the borrower’s credit card because these fees do not represent extraordinary amounts and the credit card debt is considered in the borrower’s total monthly debt-to-income ratio. Borrowers are not required to pay off these credit card changes before closing. Under no circumstances may credit card financing be used for the down payment. MiMutual may allow credit card financing for the payment of common and customary fees paid outside of closing up to a maximum of 2% of the loan amount if we: confirm that the borrower has sufficient liquid funds (financial reserves) to cover these charges (in addition to funds needed for other closing costs and the down payment that he or she will be paying); or recalculate the credit card payment to account for the new charges and include the updated payment in the qualifying ratio calculation. MiMutual must apply this policy manually, by either including the fees charged to the borrower’s credit card on line f. Estimated Closing Costs of the Details of Transaction, and removing any “Borrower Paid Fees” entered in the Other Credits section of the Details of Transaction for the fees paid outside of closing; or by increasing the monthly credit card payment in the liabilities section of the loan casefile submitted to DU to include the charges if not reflected in the credit report. Back to Top 04.03.2015 87 Conventional Underwriting Guidelines | ARMs ARMs ARMs are not eligible for the Expanded LTV/CLTV/HCLTV program. Unless otherwise stated below, all of MiMutual’s standard Conventional underwriting guidelines apply. Product Description 5/1 and 7/1 ARMs available on a 30 year term Index LIBOR for 12 months (US Dollar) as published in the Wall Street Journal Margin 2.25% Caps 5/1 ARM: 7/1 ARM: Initial Period: 2% Initial Period: 5% Subsequent Periods: 2% Subsequent Periods: 2% Lifetime: 5% Lifetime: 5% Qualifying Rate 5/1 Use the higher of the fully indexed rate (index + margin) or initial note rate + 2% 7/1 Use the greater of the fully indexed rate (index + margin) or the note rate Maximum Loan Amount 1 Unit: $417,000 2 Unit: $533,850 Fannie Mae County Loan limits can found at: https://www.fanniemae.com/singlefamily/loan-limits Back to Top 04.03.2015 88 Conventional Underwriting Guidelines | ARMs Maximum LTV/CLTV/HCLTV Ratios Please see MiMutual’s Conventional LTV Matrix for specific LTV/CLTV/HCLTV limits Financing Types Purchase Rate/Term Refinance (Limited Cash Out) HUD-1 required from any transaction within the last 6 months. If a new transaction combines a first and non-purchase money subordinate second or previous transaction was a cash out, regardless of the seasoning, it is still considered a cash out refi. Cash Out Refinance One borrower must have held title to the subject property for at least 6 months (measured from previous note date to new application date). Property Types Condominiums Project must be FNMA-warrantable Florida condos are permitted for primary residences only Established projects require a Lender Full Review. New and newly-converted attached projects must have PERS Final Project Approval issued by FNMA. Ineligible Project Warranty includes FHA-approved project, CPM Expedited, Limited Review Appraisal Requirements Follow DU Recommendation Back to Top (Remainder of page intentionally left blank) 04.03.2015 89 Conventional Underwriting Guidelines | High Balance Loans High-Balance Loans Fannie Mae permits loan amounts to exceed the General Loan Limits in certain geographic locations. Listings of loan limits by area, as determined by the FHFA, are provided at the following site: https://www.fanniemae.com/singlefamily/loan-limits. Click on the link “Conforming Loan Limits by Area”, and the spreadsheet provides drop-down menus to allow sorting and viewing by county, state, or MSA. All standard Conventional underwriting guidelines apply, except as described below. Minimum / Maximum Loan Amounts High Balance Area Loan Limits Established by Federal Housing Finance Agency (FHFA) in the Continental US Units Minimum Loan Amount Maximum Loan Limits 1 $417,001 $625,500 2 $533,851 $800,775 3 $645,301 $967,950 4 $801,951 $1,202,925 *These amounts are the maximum loan amounts that may apply; the limit may be lower for a specific high-balance area; however may not exceed 115% of area median home price. See OFHEO website for eligibility in specific MSAs for 2012 loan limits. Minimum Credit Score 660 Loan Amount and LTV Limitations Units LTV w/o Sec Fin LTV w/ Sec Fin CLTV w/ Sec Fin Max HCLTV Primary Residences Purchase and Rate/Term Refinance 1 90% 90% 90% 2-4 75% 75% 75% Cash Out Refinance 1 60% 60% 60% 2-4 n/a 90% 75% 60% Second Home 1 Purchase and Rate/Term Refinance 65% 65% 65% 65% Investment Property Purchase and Rate/Term Refinance 1-4 65% 65% 65% 65% NOTE: High Balance loans are not eligible for the Expanded LTV/CLTV/HCLTV program. Back to Top 04.03.2015 90 Conventional Underwriting Guidelines | High Balance Loans Available Terms 10, 15, 20, and 30 year fixed rate loans are available. Maximum Debt-to-Income Ratio (DTI) 45% Occupancy Primary residence Second home Investment property Property Types Florida Condos not permitted. See lists of Eligible Collateral and Ineligible Collateral in standard Conventional guidelines for further clarification. Private Mortgage Insurance (PMI) Permitted; check with individual MI companies for any overlays, if applicable. Assets Minimum Borrower Investment (From Own Funds) ≤ 80% LTV/CLTV: No minimum requirement > 80% LTV/CLTV: 5% Gift Funds Gift funds are permitted after borrower’s minimum required investment is met. Reserves Follow DU’s recommendation for required reserves Appraisals MiMutual will follow DU recommendation; however, transferred appraisals are not permitted. Seller Contributions Max 3% Back to Top 04.03.2015 91 Conventional Underwriting Guidelines | DU Refi Plus DU Refi Plus™ Available Terms Fixed Rate: ARM: 10, 15, 20, 25, and 30 year 5/1, 7/1 Maximum LTV/CLTV Fixed Rate: ARM: Unlimited LTV/CLTV/HCLTV 105% LTV (initial fixed period must be 5 years or greater), unlimited CLTV/HCLTV Maximum Mortgage Amount The maximum mortgage amount is the payoff balance of the existing first mortgage plus closing costs and prepaid expenses. High Balance loans are permitted. The eligibility parameters for DU Refi Plus supersede those for the High Balance feature. The new loan may have a High Balance feature, subject to current loan limits. Jumbo loans are not permitted. Minimum Credit Score A minimum credit score of 680 is required. Qualifying Ratios As determined by DU Approve/Eligible findings Credit Mortgage Payment History Cannot be past due by two or more payments in the last 12 months Bankruptcy A minimum of 48 months must have elapsed since the discharge date Foreclosure A minimum of 84 months must have elapsed since the date of the event. Back to Top 04.03.2015 92 Conventional Underwriting Guidelines | DU Refi Plus Occupancy 1-4 unit primary residence 1 unit second home 1-4 unit investment property NOTE: The existing mortgage and the new DU Refi Plus mortgage loan do not have to represent the same occupancy. The occupancy of the subject property may have changed by the time of the new mortgage transaction. Because the loan represents existing FNMA risk, there is no requirement that the occupancy has stayed the same. Property Types DU Refi Plus property types mimic the Eligible Collateral and Ineligible Collateral lists in the Collateral chapter. NOTE: Though a condo questionnaire is not required for condominiums, the HOA must still verify that the property is not a condotel, houseboat project, a timeshare, or a segmented ownership project. Benefit to Borrower To be eligible for DU Refi Plus, the borrower must receive a benefit in the form of either a reduced monthly mortgage payment (principal and interest), a more stable product (such as a move to a fixed-rate mortgage from an ARM), a reduction in the interest rate, or a reduction in the loan amortization term. DU Findings Approve/Eligible recommendation required for approval. Findings must contain the DU Refi Plus condition. Manual underwrites are ineligible. Approve/Ineligible recommendations are not acceptable, regardless of reason. Escrow Waivers Permitted for all DU Refi Plus loans that exceed 80% LTV, providing they previously had an escrow waiver. Credit Documentation Requirements Income A VVOE will be performed within 10 days of closing for all loans W2 Borrower: Most recent paystub and last year’s W2 statement(s) Commission Income: Most recent paystub and last year’s W2 statement(s) or most recent year’s personal tax returns (without regard to percentage of commission earnings) Self-Employed: Most recent year’s personal tax returns Back to Top 04.03.2015 93 Conventional Underwriting Guidelines | DU Refi Plus Assets Any funds required for closing will need to be documented with 1 month bank statement dated no less than 60 days from closing. Large deposits that appear on statements are not required to be investigated Proof of liquidation of assets to pay closing costs is not required Standard policy regarding discount of certain assets (60%) applies if the assets are required to satisfy DU reserve requirements. Mortgage Insurance MiMutual will only accept loans that do not require Mortgage Insurance. This includes situations in which the original loan had an LTV of less than or equal to 80%, and the new loan has a LTV greater than 80% but no MI is required per Fannie Mae's MI waiver for DU Refi Plus™ loans. Appraisal Requirements As determined by DU. A Property Inspection Waiver may be available for a fee of $75.00, if the PIW condition appears on the findings. If an appraisal is required, it must be ordered through Priority Appraisal USA. For a refinance of an investment property, Form 1007 is not required to be obtained if the borrower is using rental income to qualify. Subordinate Financing New subordinate financing is only permitted if it replaces existing subordinate financing Existing subordinate financing may not be satisfied with the proceeds of the new DU Refi Plus loan Existing subordinate financing can remain in place as long as it is resubordinated to the new DU Refi Plus loan Existing subordinate financing may be simultaneously refinanced as long as the new subordinate lien loan amount does not exceed the existing unpaid principal balance A signed Subordination Agreement will be required prior to closing. Back to Top 04.03.2015 94 Conventional Underwriting Guidelines | DU Refi Plus Additional Important Notes Maximum $250 cash back. Cash out refinances are not permitted. Original loan must have closed prior to 6/1/2009 in order to be eligible An existing borrower(s) may be removed from the new loan, provided: o The borrower being removed is also removed from the deed and retains no ownership interest in the property, and o At least one of the original borrower(s) is retained on the new loan Borrower(s) may be added to the new loan, provided the existing borrower(s) is retained. Make sure name and address in DU match the name and address on the previous FNMA loan exactly. Example: John B Homeowner vs. John B. Homeowner Borrower availability can be checked at http://loanlookup.fanniemae.com/loanlookup/ Some loans that contain credit enhancements will not be eligible for this program. This includes some loans with lender-paid Mortgage Insurance (LPMI) and lender recourse. It does not need to be confirmed that the subject property is not currently listed for sale Back to Top 04.03.2015 95 Conventional Underwriting Guidelines | Jumbos Jumbos Unless otherwise addressed in MiMutual’s guidelines, the more restrictive of the FNMA Selling Guide or Appendix Q must be followed. Available Products Fixed Rate: 30 year, 25year, 20 year, 15 year, 10 year ARM: 5/1 LIBOR, 7/1 LIBOR, 10/1 LIBOR (ARMs carry a 30 year term and are fully amortizing) Qualifying Rate Fixed Rates: 5/1 ARM: 7/1 ARM: 10/1 ARM: Note rate Greater of the fully indexed rate or Note Rate + 2% Greater of the fully indexed rate or Note Rate Greater of the fully indexed rate or Note Rate Eligible Property Types Single Family Residences only (includes condos and PUDs) Occupancy Primary Residences Second Homes o Must be located a reasonable distance from the borrower’s principal residence o Must be occupied by the borrower for some portion of the year o Must be suitable for year-round use Maximum Loan Amount $2,500,000 Maximum DTI Fixed Rate Loans: 43% ARMs: 40% Minimum Credit Score 720 Back to Top 04.03.2015 96 Conventional Underwriting Guidelines | Jumbos Max LTV/CLTV/HCLTV Primary Residence: Purchases Property Type 1 Unit PUD Condo4 Maximum LTV/CLTV/HCLTV Maximum Loan Amount 80% $1,500,000 75% $2,000,000 70% $2,500,000 1 65% $1,000,000 60% $1,500,000 Minimum Loan Amount3 Maximum DTI 40%2 / 43% $417,001 or $1 above the conforming limit for # of units 2 Unit 40%2 / 43% 40%2 / 43% 40%2 / 43% 40%2 / 43% Primary Residence: Rate/Term Refis Property Type 1 Unit PUD Condo4 2 Unit Maximum LTV/CLTV/HCLTV Maximum Loan Amount Minimum Loan Amount3 80% $1,000,000 75% $1,500,000 70% $2,000,000 60% $2,500,000 1 65% $1,000,000 40%2 / 43% 60% $1,500,000 40%2 / 43% Maximum DTI 40%2 / 43% $417,001 or $1 above the conforming limit for # of units 40%2 / 43% 40%2 / 43% 40%2 / 43% Primary Residence: Cash Out Refis Property Type 1 Unit PUD Condo4 Maximum LTV/CLTV/HCLTV Maximum Loan Amount Minimum Loan Amount3 Maximum Cash Out Maximum DTI 70% $1,000,000 $250,000 40%2 / 43% 65% $1,500,000 60% $2,000,000 50% $2,500,000 1 $417,001 or $1 above the conforming limit for # of units $500,000 $750,000 40%2 / 43% 40%2 / 43% 40%2 / 43% Second Home: Purchases and Rate/Term Refis Property Type 1 Unit PUD Condo4 Maximum LTV/CLTV/HCLTV 75% Maximum Loan Amount $1,000,000 70% $1,500,000 65% $2,000,000 50% $2,500,000 1 Minimum Loan Amount3 $417,001 or $1 above the conforming limit for # of units Maximum DTI 40%2 / 43% 40%2 / 43% 40%2 / 43% 40%2 / 43% 1 Loan Amounts > $2,000,000 available on 30 year fixed rate product only DTI maximum is limited to 40% for hybrid ARMs (5/1 LIBOR, 7/1 LIBOR and 10/1 LIBOR ARMs) 3 Loan amounts between Conforming Loan Limits and Agency High Balance Loan Limits are eligible 4 Florida condos carry a max LTV/CLTV/HCLTV of 75% (established projects only) and require an acceptable CPM Certificate 2 04.03.2015 97 Conventional Underwriting Guidelines | Jumbos ARM Specifics Interest Rate Adjustment Caps Initial: 2% up/down Subsequent: 2% up/down Lifetime: 5% up Margin 2.25 Index 1-Year LIBOR (London InterBank Offer Rate) Interest Rate Floor Equal to the Margin Change Dates 5/1: The first change date is the 60th payment due date. Subsequent change dates are every 12 months thereafter 7/1: The first change date is the 84th payment due date. Subsequent change dates are every 12 months thereafter 10/1: The first change date is the 120th payment due date. Subsequent change dates are every 12 months thereafter Conversion Option Not convertible Assumption Feature Assumable. However, MiMutual does not underwrite or close assumptions. Documentation Requirements Full doc. Manual underwriting requirements apply, regardless of AUS documentation waivers. However, DU findings are required on all Jumbo loans. The recommendation may be Approve/Ineligible, with the only reason for ineligibility being the loan size. Back to Top 04.03.2015 98 Conventional Underwriting Guidelines | Jumbos Borrowers Eligible US Citizens Permanent Resident Aliens, providing they meet the following criteria: o Can provide acceptable documentation to verify that a non-US Citizen borrower is legally present in the US o Must be employed in the United States for the past 12 months o Demonstrate that income and employment is likely to continue for at least 3 years Non-Permanent Resident Aliens, providing they meet the following criteria: o 20, 25, 30 year fixed rate only o Primary residence only o Maximum LTV/CLTV/HCLTV 75% o No other real estate ownership in the U.S. o Unexpired passport from the country of citizenship containing INS Form I-94, which must be stamped “Employment Authorized” o An Employment Authorization Card, along with a copy of the Petition for Non-Immigrant Worker (Form I-140) o Unexpired H1B, H2B, and L-1 visas only o Credit tradeline requirements must be met. No exceptions. o Employment history and income verification and validation requirements must be met. No exceptions. Ineligible First Time Homebuyers (borrowers who have not owned a property in the last 3 years) Any borrower without a Social Security Number (ITINs are not eligible) Multiple Properties Financed/Owned The borrower(s) may own a total of four (4) financed, 1-4 unit residential properties, including the subject property, and regardless of occupancy. All financed properties, other than the subject property, require an additional six (6) months’ PITIA reserves for each property. The borrower may have an unlimited number of properties owned but not financed. For other properties owned, documentation to confirm the P&I, taxes, insurance, HOA dues, lease payments, or other property-related expenses must be provided. NOTE: Financed properties held in the name of an LLC or other corporation can be excluded from the calculation of number of properties financed only in cases where the borrower is not personally obligated for the mortgage. Back to Top 04.03.2015 99 Conventional Underwriting Guidelines | Jumbos Rate/Term Refinance Restrictions Max cash back to borrower is 1% of the principal amount of the new mortgage The new loan amount is limited to the payoff of the present first lien, any seasoned non-first lien mortgages, closing costs, and prepaids. A seasoned non-first lien mortgage is a purchase money mortgage or a mortgage that has been in place for 12 months. A seasoned equity line is defined as not having any draws greater than $2000 in the past 12 months. Properties that were listed, or are for sale, within 6 months prior to the date of application are acceptable for a refinance transaction, if the following requirements are met: o No cash out o Required documentation: Proof of cancelled listing prior to closing Acceptable letter of explanation from the borrower detailing the rationale for changing the intention to sell Cash Out Refinance Restrictions Properties that have been listed for sale within the past 12 months of loan application are not eligible for a cash out refinance Borrower must have owned property for at least six months prior to the application date unless requirements for Delayed Purchase Refinance are met For cash out refinances where the borrower is paying off a loan from a pledged asset or retirement account loan, the following guidelines apply: o Cash out limitation is waived if previous transaction is a purchase o HUD-1 Settlement Statement must reflect payoff or pay down of pledged asset loan or retirement account loan; if cash out proceeds exceed payoff of loans, excess cash must meet cash out limits Inherited Properties LTV is based on the current appraised value Property must be fully transferred from the Estate ownership for a minimum of 12 months If the property was inherited less than 12 months ago, the borrower can be considered for a rate/term refinance provided the borrower: o Retains sole ownership of the property after the payout of other beneficiaries o Would receive cash in hand not to exceed 1% of the loan amount Back to Top 04.03.2015 100 Conventional Underwriting Guidelines | Jumbos Delayed Purchase Refinances Defined as the refinance of a property purchased by the borrower for cash within six (6) months of the current loan’s application date, a delayed purchase refinance requires the following: Underwritten as a rate/term refinance Primary residence & second homes allowed HUD-1 from the original purchase. Documentation must show that total funds to close for the purchase were from the borrower’s own funds (no borrowed, gift, or shared funds) Funds secured by a pledged asset or retirement account are not considered borrower’s own funds and are not eligible for the Delayed Purchase Refinance program; see cash out section for additional guidance. LTV/CLTV/HCLTV Calculation Purchases The LTV/CLTV/HCLTV for a purchase transaction is calculated based on the lesser of the purchase price or appraised value of the subject property Refinances: Rate/Term and Cash Out If the borrower has less than 12 months ownership in the property, the LTV/CLTV/HCLTV for a refinance transaction is calculated on the lesser of the purchase price or appraised value o For homes where capital improvements have been made to the property after purchase, LTV/CLTV/HCLTV can be based on the lesser of the current appraised value or original purchase price plus the documented improvements. Receipts are required to document cost of improvements. If the borrower has owned the property for 12 months, the LTV/CLTV/HCLTV is based on the appraised value Released subordinate liens must be paid off and closed to exclude them from CLTV/HCLTV calculation Delayed Purchase Refinance The LTV/CLTV/HCLTV is calculated based on the lesser of the purchase price or appraised value of the subject property Back to Top 04.03.2015 101 Conventional Underwriting Guidelines | Jumbos Construction to Permanent Refinance Restrictions The conversion of construction to permanent financing involves the granting of a long-term mortgage to a borrower for the purpose of replacing interim construction financing that the borrower has obtained to fund the construction of a new residence. The borrower must hold title to the lot, which may have been previously acquired or purchased as part of the transaction, and must be named as the borrower for the construction loan. Rate/Term and Cash Out Refis o For lots owned ≥ 12 months from application date for subject transaction, LTV/CLTV/HCLTV is based on the current appraised value o For lots owned < 12 months from application date for subject transaction, LTV/CLTV/HCLTV is based on the lesser of the current appraised value of the property or the total acquisition costs (sum of construction costs and purchase price of lot) A Certificate of Occupancy from the applicable government authority is required. If the applicable government authority does not require a C of O, then proof of the absence of this requirement must be provided. Non-Arm’s Length Transactions A non-arm’s length transaction in one in which there is a relationship or business affiliation between the borrower(s) and/or any parties in the transaction. If a direct relationship exists between any of the parties to a transaction, including the borrower/buyer, seller (if applicable), employer, lender, broker, or appraiser, then the transaction will be considered non-arm’s length. Examples include (but are not limited to): o Family sales or transfers o Borrower(s) purchasing a property from a builder who, in turn, is purchasing the borrower’s existing property o Renters buying from landlord o Property trades between buyer and seller o Employer to employee sales or transfers o Borrowers or CoBorrowers employed in the real estate or construction trades who are involved in the construction, financing, or sale (i.e. listing agent) of the subject property Non-arm’s length transactions are not eligible, with the exception of the following: Family sales or transfers Property sellers are representing themselves as agent in real estate transaction Buyers/borrowers are representing themselves as agent in real estate transaction The borrower is the employee of the originating lender and the lender has an established employee loan program Renter buying from landlord o 24 months cancelled checks will be required to document a satisfactory (0x30) pay history Back to Top 04.03.2015 102 Conventional Underwriting Guidelines | Jumbos Secondary / Subordinate Financing Institutional financing ONLY up to the maximum LTV/CLTV/HCLTV is permitted. Subordinate liens must be recorded and clearly subordinate to the first mortgage lien. Full disclosure must be made on the existence of subordinate financing and the subordinate financing repayment terms. Acceptable subordinate financing types are: Mortgages with regular payments that cover at least the interest due so that negative amortization does not occur Mortgage terms that require interest at a market rate Seller subordinate financing not allowed Employer subordinate financing allowed when the following conditions are met: o The employer must have an Employee Financing Assistance program in place o The employer may require full repayment of the debt if the borrower’s employment ceases before the maturity date o Financing can be structured in any of the following ways: Fully amortizing, level monthly payments Deferred payments for a specified period of time, then changing to amortizing payments Deferred payments over the entire term Forgiveness of debt over time Balloon payment in no less than 5 years, or borrower must have sufficient liquidity to pay off the loan Interested Party Contributions Interested party contributions include funds contributed by the property seller, builder, real estate agent/broker, mortgage lender, or their affiliates, or any other party with an interest in the real estate transaction. Interested party contributions may only be used for closing costs and prepaid expenses, and may never be applied to any portion of the down payment or contributed to the borrower’s financial reserve requirements. Maximum IPCs are 6% for ≤ 80% LTV. Escrow Accounts Escrow waivers are available, but will contain a loan-level pricing adjustment Back to Top 04.03.2015 103 Conventional Underwriting Guidelines | Jumbos Credit Requirements Adverse Credit No instances of bankruptcy/foreclosure/short sale in borrower’s entire credit history are permitted Loan modifications are not allowed, unless the modification is unrelated to hardship and there is no debt forgiveness Housing Payment History Mortgage/Rent history requires 0x30 in the past 24 months - NO EXCEPTIONS. This applies to all borrowers on the loan. Borrowers who currently live rent-free (with family or other), or can only provide a VOR from a private individual are not eligible. Inquiries All inquiries in the last 120 days require the borrower to address and document acceptably. Age of Credit Report The credit report may not be more than 90 days old at the time the Note is signed. Tradeline Requirements Borrowers are required to have a minimum of 3 open tradelines: 1 One must be open and active for 24 months At least one of the required 3 tradelines must be an installment or mortgage account Remaining tradelines must be rated for 12 months Two open tradelines are acceptable for purchase transactions where the borrower(s) have a 24 month mortgage history in the past 5 years.1 1 An exception to the minimum tradeline requirements is not required if the borrower’s credit history meets the following: No less than 10 tradelines are reporting – one must be a mortgage At least one tradeline is open and reporting for a minimum of 12 months Credit history is established for at least 10 years Back to Top 04.03.2015 104 Conventional Underwriting Guidelines | Jumbos Authorized User Accounts If the borrower is an authorized user, the account may be used in evaluating the applicant borrower’s credit worthiness under the following circumstances: The borrower is an “authorized user spouse” on the account The applicant requests that an account in the name of the applicant’s spouse, or former spouse, be considered when it demonstrates that the account reflects the applicant’s credit worthiness If the “authorized user” is not a spouse, at the applicant’s request, the account can be considered in the evaluation provided the applicant can provide evidence that they have been paying the debt, and the payment is included in the DTI Otherwise, Authorized User accounts will not be considered as acceptable tradelines. Disputed Tradelines All disputed tradelines must be included in the total expense ratio (DTI) if the account belongs to the borrower(s), unless documentation can be provided that authenticates the dispute. Derogatory accounts must be considered in analyzing the borrower(s) willingness to repay debt. However, if a disputed account has a zero balance, and no late payments, it can be disregarded. Student Loans For all student loans, whether deferred, in forbearance, or in repayment, the monthly payment to be used is the greater of the following: 1% of the outstanding balance, or The actual documented payment If the actual documented payment is less than 1% of the outstanding balance and it will fully amortize the loan with no payment adjustments, the lower fully amortizing payment may be used in qualifying. Departure Residence Pending Sale In order to exclude the payment for a borrower’s primary residence that is pending sale but will close after the subject transaction the following requirements must be met: A copy of an executed sales contract for the property pending sale and confirmation all contingencies have been cleared/satisfied. The closing date for the departure residence must be within 30 days of the subject transaction note date. 6 months liquid reserves must be verified for the PITIA of the departure residence. Departure Residence Subject to Guaranteed Buy-out with Corporation Relocation In order to exclude the payment for a borrower’s primary residence that is part of a Corporate Relocation the following requirements must be met: Copy of the executed buy-out agreement verifying the borrower has no additional financial responsibility toward the departing residence once the property has been transferred to the 3rd party. Guaranteed buy-out by the 3rd party must occur within 4 months of the fully executed guaranteed buy-out agreement. Evidence of receipt of equity advance if funds will be used for down payment or closing costs. Verification of an additional 6 months PITIA of the departure residence. 04.03.2015 105 Conventional Underwriting Guidelines | Jumbos Income Requirements Stable monthly income is the borrower's verified gross monthly income from all acceptable and verifiable sources that can reasonably be expected to continue for at least the next three years. For each income source used to qualify the borrower, MiMutual must determine that both the source and the amount of the income are stable. A two-year history of receiving income is required in order for the income to be considered stable and used for qualifying. When the borrower has less than a two-year history of receiving income, MiMutual will prepare a written analysis to justify the determination that the income that is used to qualify the borrower is stable. While the sources of income may vary, the borrower should have a consistent level of income despite changes in the sources of income. The following is required to establish stability of employment and income for the borrower(s) whose income is used to qualify: A minimum of 2 years employment and income history: o Any gaps in employment in excess of 30 days during the past 2 years require a satisfactory letter of explanation o For a borrower who has less than a 2 year employment and income history, the borrower’s income may be qualifying income if it can be documented that the borrower was either attending school or in a training program immediately prior to their current employment history. School transcripts must be provided to document. o Exceptions for gaps in employment in excess of 6 months, and when the borrower has been employed by their employer for less than 6 months, are not permitted For borrowers of retirement age using asset distributions for income, see Retirement Income section for further requirements. Income may not be used for qualification if it comes from any source that cannot be verified, is not stable, or will not continue. Back to Top 04.03.2015 106 Conventional Underwriting Guidelines | Jumbos Employees Paid via W2 / 1099 All paystubs must be computer generated. W2s must be complete and be a copy provided by the employer If the borrower is paid hourly, the number of hours must be reflected on the paystub If overtime earnings are being used to qualify, they must be reflected on the YTD paystub If a written VOE is obtained, all sections must be completed. It must be sent directly to the employer, attention of the personnel department, and it must be returned directly to the lender Alimony/Spousal Support Alimony income requires documentation the borrower has been receiving full, regular, and timely payments for the past 12 months. If this income is the borrower’s primary income source and there is a defined expiration date (even beyond 3 years), the income may not be acceptable for qualifying. Tax Returns All tax returns, whether personal or business returns, must be executed by borrower(s) on or before the closing date, regardless of whether 4506T results were obtained A 4506-T must be processed and income tax transcripts obtained (for each year requested) to validate all income used for qualifying After the tax return extension expiration date, loan is not eligible without prior year tax returns In cases where taxes have been filed and the tax transcripts are not available from the IRS, the IRS response to the request must reflect "No Record Found". In these cases, an additional prior year's tax transcripts should be obtained and provided. Large increases in income that cannot be validated through a tax transcript may only be considered for qualifying on a case-by-case basis When using tax returns to verify income, and it is between the tax filing date and the extension expiration date (typically October 15th), the borrower must provide: o Copy of the filed extension o W2 forms o 1099s when applicable o Current year Profit & Loss Statement, executed by the borrower o Year-End Profit & Loss Statement for prior year, executed by the borrower o Balance Sheet for prior calendar year (all self-employment types) o Evidence of payment of any tax liability identified on the federal tax extension form Employment Income Sources Salaried An earnings trend must be established and documented. Large increases in salary over the previous two years must be explained and documented. W2 forms or personal tax returns, including all schedules, for prior two years Year-to-date paystub up through and including the most current pay period at the time of application and not earlier than 90 days prior to Note date If borrower is claiming overtime pay, it must be shown on the YTD paystub Back to Top 04.03.2015 107 Conventional Underwriting Guidelines | Jumbos Hourly and Variable Income An earnings trend must be established and documented. Stable to increasing income should be averaged over a minimum two year period. Declining income must be explained by the employer/borrower and a written determination by the underwriter will be prepared if declining income is used for qualifying. W-2 forms or personal tax returns, including all schedules, for prior two years. Year-to-date paystub up through and including the most current pay period at the time of application. Part Time Income Borrower must have worked the part-time job uninterrupted for the past two years, and plans to continue. If the part-time income shows a continual decline, written sound rationalization for using the income to qualify will be prepared by the underwriter, or income may not be used. W-2 forms for prior two years. Year-to-date pay up through and including the most current pay period at the time of application Commission Commission income must be averaged over the previous two years. If the commission income shows a continual decline, written sound rationalization for using the income to qualify must be provided, or income will not be used. W2 forms for prior two years if commissions are less than 25% of the total income Tax returns, including all schedules, and W2 form from the previous two years if commissions are ≥ 25% of the total income Unreimbursed Business Expenses (Form 2106) must be subtracted from income Year-to-date paystub up through and including the most current pay period at the time of application Overtime and Bonus An earnings trend for bonus and overtime must be established and documented. A period of more than two years must be used in calculating the average overtime and bonus income if the income varies significantly from year to year. If either type of income shows a continual decline, written sound rationalization for using the income to qualify must be provided, or income should not be used. W2 forms or personal tax returns, including all schedules, for prior 2 years Year-to-date paystub up through and including the most current pay period at the time of application Back to Top 04.03.2015 108 Conventional Underwriting Guidelines | Jumbos Self-Employed Income Sources Self-employed borrowers are defined as those individuals who have 25% or greater ownership interest or receive a 1099 statement to document income. Borrowers who are employed by a family member are considered to be self-employed, regardless of the percentage of ownership, and self-employed documentation is required. Potential ownership by the borrower must be addressed. Sole Proprietorship YTD through current quarter P&L and Balance Sheet Personal tax returns, including all schedules, for prior two years See Tax Returns for additional requirements regarding unfiled prior year returns Partnerships (General, Limited) / Limited Liability Companies / “S” Corporations / Corporations YTD through current quarter P&L and Balance Sheet Personal tax returns, including all schedules, for prior two years. K-1s from prior two years, showing ownership percentage. K-1s are not required if the source is reporting positive income and the income is not used for qualification. If K-1s show a loss, they are required, regardless if they are used for qualifying purposes. If using capital gains, interest/dividend or W2 income from this source is used, K-1s are required. Business tax returns (1065/1120), including all schedules, for the prior two years are required if the borrower has an ownership percentage ≥ 25%; they are not required if reporting positive income via a K-1, and the income is not used for qualification purposes. If the K-1s show a loss, then the applicable corporate returns are needed regardless if they are used for qualification purposes. See Tax Returns for additional requirements regarding unfiled prior year returns Rental Income Sources Lease agreements must be provided if rental income is used for qualifying purposes. All Properties Personal tax returns, including all schedules, for the prior two years Copy of current lease agreement for each rental property, including commercial properties listed in Part 1 of Schedule E of the 1040s See Tax Returns for additional requirements regarding unfiled prior year returns For properties listed on Schedule E of the borrower’s tax returns, net rental income should be calculated as the total of (income + depreciation + interest + taxes + insurance) divided by the applicable months minus the current PITI. o If the subject property is the borrower’s primary residence and generating rental income, the full PITI must be included in the borrower’s total monthly obligations If rental income is not available on the borrower’s tax returns, a current executed lease agreement is required. Net rental income should be calculated as the gross monthly rent multiplied by 75%. Net rental income must be added to the borrower’s total monthly income. Net rental losses must be added to the borrower’s total monthly obligations. Back to Top 04.03.2015 109 Conventional Underwriting Guidelines | Jumbos Departing Residence When a borrower vacates a principal residence in favor of another principal residence, the rental income, reduced by the appropriate vacancy factor, may be considered in the underwriting analysis under the following circumstance: Sufficient Equity in Vacated Property: o The borrower has an LTV/CLTV of 75% or less as determined by a residential appraisal dated within 6 months o Full appraisal or exterior only appraisal allowed o Copy of current lease agreement o Copy of security deposit and evidence of deposit to borrower’s account Retirement Income Sources Retirement Income (Pension, Annuity, IRA Distributions) / Asset Depletion or Dissipation Fixed income payments such as social security or pension income can be used at full value/distribution and may not be considered in any annuitization calculation. Existing distribution of assets from an IRA, 401K or similar retirement asset account must be sufficient to sustain income continuance for a minimum of three (3) years. Document regular and continued receipt of income as verified by: o Letters from the organizations providing the income o Copies of retirement award letters o Copies of signed federal income tax returns o IRS W2 or 1099 forms o Proof of current receipt o Employment-related assets as qualifying income must be owned individually by the borrower. Assets must be liquid and available to the borrower with no penalty and must be sourced as follows: For assets held in the form of stocks, bonds, and mutual funds, 70% of the value must be used to determine the income stream NOTE: Distributions from asset accounts cannot be set up, or changed, solely for loan qualification purposes Social Security Income Social Security income must be verified by a Social Security Administration benefit verification letter (sometimes called a “proof of income letter”, “budget letter”, “benefits letter”, or “proof of award letter”). If any benefits expire within the first full three years of the loan, the income source may not be used in qualifying. Back to Top 04.03.2015 110 Conventional Underwriting Guidelines | Jumbos Other Income Sources Alimony, Separate Maintenance, and Child Support Income Will be considered with a divorce decree, court ordered separation agreement, court decree, or other legal agreement providing the payment terms confirming that income will continue for at least three (3) years. If the income is the borrower’s primary income source and there is a defined expiration date (even if beyond 3 years), the income may not be acceptable for qualifying purposes. Documentation evidencing that the borrower has been receiving full, regular, and timely payments for the past 12 months. See non-taxable income for child support income treatment. Capital Gains Capital gains for like assets may be considered as effective income. The earnings trend or loss must be considered in the overall analysis of this income type. If the trend results in a gain, it may be added as effective income. If the trend consistently shows a loss, it must be deducted from the total income. Tax returns for the prior three years, including Schedule D. Gains must be consistent amounts from consistent sources. Verified assets to support continuance must be documented Dividend/Interest Interest and Dividend income may be used as long as documentation supports a two-year history of receipt. Tax returns for the prior two years Proof of assets to support the continuation of interest and dividend income. Stock Options & Restricted Stock Grants Eligible as qualifying income, provided: The income has been received for 2 years as identified on the paystubs, W2s, and tax returns, and Documentation indicates continuance for a minimum of 3 years Note Income A copy of the Note must document the amount, frequency and duration of payments Regular receipt of note income for the past 12 months must be documented, and evidence of note income must be reflected on tax returns. Verification that income is expected to continue for a minimum of three (3) years Back to Top 04.03.2015 111 Conventional Underwriting Guidelines | Jumbos Trust Income Income from trusts may be used if guaranteed and regular payments will continue for at least 3 years. Regular receipt of trust income for the past 12 months must be documented. A copy of the Trust Agreement or Trustee Statement showing: o Total amount of borrower-designated trust funds o Terms of payment o Duration of trust o Portion of income that is not taxable Non-taxable trust income must include proof of distribution. Foreign Income W-2 forms or personal tax returns, including all schedules, for prior two years. Year-to-date pay stub. All income must be converted to U.S. currency. Non-Taxable Income (Including Child Support, Disability, Foster Care, Military, etc) Documentation must be provided to support continuation of income for a minimum of three (3) years. The amount of continuing tax savings attributed to regular income not subject to Federal taxes may be added to the borrower’s gross income. The percentage of non-taxable income that may be added cannot exceed the appropriate tax rate for the income amount. Additional allowances for dependents are not acceptable. Documentation Requirements: Must document and support the amount of income grossed-up for any nontaxable income source, and The same tax rate the borrower used to calculate his/her income tax from the previous year must be used. Tax returns must be provided to confirm the income is non-taxable and the prior year’s tax rate. Note: If the borrower is not required to file a Federal tax return, the tax rate to use is 25%. Unacceptable Income Sources 04.03.2015 Rental income received from borrower’s single family primary residence or second home Income from trailing coborrowers Retained Earnings Education Benefits Any unverified source Income that is temporary or a one-time occurrence Any income that is not legal in accordance with all applicable federal, state and local laws, rules and regulations. Federal law restricts the following activities and therefore the income from these sources are not allowed for qualifying: o Foreign shell banks o Medical marijuana dispensaries o Any business or activity related to recreational marijuana use, growing, selling or supplying of marijuana, even if legally permitted under state or local law. o Businesses engaged in any type of internet gambling 112 Conventional Underwriting Guidelines | Jumbos Asset Requirements Documentation Requirements Checking and Savings Accounts The two most recent, consecutive months’ statements for each account are required Large deposits inconsistent with monthly income or other deposits must be verified Marketable Securities / Stock Accounts Two most recent, consecutive months’ stock/securities account statements are required Full value of stock accounts can be considered in the calculation of assets available for closing and reserves Non-vested or restricted stock accounts are not eligible for use as downpayment or reserves Retirement Accounts Most recent retirement account statement covering a minimum two month period Evidence of liquidation is required when funds are used for downpayment or closing costs If the borrower is > 59 ½ years old, 70% of the vested value of retirement accounts, after reduction of any outstanding loans, may be considered toward the required reserves If the borrower is < 59 ½ years old, 60% of the vested value of retirement accounts, after reduction of any outstanding loans, may be considered toward the required reserves Retirement accounts that do not allow any type of withdrawal are ineligible for use as reserves Business Funds Business funds may be used for downpayment and/or closing costs, not for purposes of calculating reserves. Cash flow analysis required using 3 months business bank statements to determine no negative impact to business based on withdrawal of funds. The borrower must have access to the funds The borrower must be the sole proprietor or 100% owner of the business (or all borrowers combined own 100%) Back to Top 04.03.2015 113 Conventional Underwriting Guidelines | Jumbos Gift Funds Gift funds are permitted after borrower has at least 5% own funds into the transaction (purchases) Gift funds cannot be used as reserves Donor must be an immediate family member, future spouse, or domestic partner living with borrower An executed gift letter with the gift amount, donor’s name, address, telephone number, and relationship is required It must be verified that sufficient funds to cover the gift are either in the donor’s account, or have been transferred to the borrower’s account. Acceptable documentation includes the following: o A copy of the donor’s check and the borrower’s deposit slip o A copy of the donor’s withdrawal slip and the borrower’s deposit slip o A copy of the donor’s check to the closing agent o A settlement statement showing receipt of the donor’s check. When the funds are not transferred prior to settlement, MiMutual must document that the donor gave the closing agent the gift funds in the form of a certified check, cashier’s check, or other official check. Reserve Requirements Beyond the minimum reserve requirements and in an effort to fully document the borrower’s ability to meet their obligations, borrowers should disclose and verify all other liquid assets. Reserves are required to be verified on all transactions. See table below for amount of required reserves that must be verified Gift funds cannot be used for reserves All financed properties, other than the subject property, require an additional six months PITIA in reserves for each property. Reserve Requirements Loan Amount Required Reserves1 ≤ $1,000,000 6 months PITIA $1,000,001 - $1,500,000 9 months PITIA Primary Residence $1,500,001 - $2,000,000 12 months PITIA $2,000,001 - $2,500,000 24 months PITIA ≤ $1,000,000 12 months PITIA $1,000,001 - $1,500,000 18 months PITIA Second Home $1,500,001 - $2,000,000 24 months PITIA $2,000,001 - $2,500,000 36 months PITIA 1 For hybrid ARMs, add 3 months PITIA to minimum reserves required as noted above Occupancy Back to Top 04.03.2015 114 Conventional Underwriting Guidelines | Jumbos Collateral Requirements Full appraisals are required on all transactions (1004 or 1073). See table below for appraisal requirements. Appraisals must be ordered through Priority Appraisal USA (or your MiMutual-assigned AMC, if different) on all transactions, including correspondent. Transferred appraisals are not allowed. No recertifications of value are permitted after 120 days. The appraisal(s) must be dated within 120 days of the Note date Appraisals should not include comps greater than six (6) months old at the time of underwriting Properties with values significantly in excess of the predominant value of the subject’s market area may be ineligible When 2 appraisals are required, the following apply: o Appraisals must be completed by 2 independent companies o The LTV will be determined by the lower of the two appraised values as long as the lower appraisal supports the value conclusion. The final inspection and/or recertification of value must be for the appraisal with the lower value o The underwriter must review both appraisal reports and address any inconsistencies between the two reports. All discrepancies must be reconciled. For properties purchased by the seller of the property within 90 days of the fully executed purchase contract, additional requirements will apply: o Property seller on the purchase contract must be the owner of record o Increases in value should be documented with commentary from the appraiser and recent paired sales Appraisal Requirements First Lien Loan Amount Appraisal Requirement Purchase Transactions ≤ $2,000,000 > $2,000,000 One (1) Full Appraisal Two (2) Full Appraisals Refinance Transactions ≤ $1,000,000 > $1,000,000 One (1) Full Appraisal Two (2) Full Appraisals Back to Top 04.03.2015 115 Conventional Underwriting Guidelines | Jumbos Eligible Collateral Eligible collateral includes: Single family detached properties Planned Unit Developments (PUDs) Low/Mid/Highrise Condominiums, Fannie Mae Warrantable o Must meet Fannie Mae full requirements o CPM certificates allowed o Site Condos eligible o Limited Review allowed only for detached condominiums Properties with ≤ 20 acres o Properties with 10.1 to 20 acres require: 30 year fixed rate only Maximum 35% land-to-value ratio No income-producing attributes Properties subject to existing oil and/or gas leases that meet the following requirements: o Title endorsement providing coverage to the lender against damage to existing improvements resulting from the exercise of the right to use the surface of the land which is subject to an oil and/or gas lease. o No active drilling. o No lease executed after the home construction date Re-recording date of lease after home construction is permitted. o Must be connected to public water Properties that fall outside of these parameters may be considered on an exception basis Ineligible Collateral Ineligible collateral includes: Unique properties / log homes 2-4 unit owner occupied properties 2-4 unit second homes Non-warrantable condos Any properties with > 20 acres. Appraiser must indicate total acreage. It is unacceptable to have the property appraised with only 20 acres in order to meet eligibility. Properties subject to existing oil or gas leases Florida condos in new or newly-converted projects FEMA Declared Disaster Area Policy The FEMA Declared Disaster Area Policy applies to all areas eligible for individual and/or public assistance due to a federal government disaster declaration. If the subject property has had an appraisal completed prior to a declared disaster, prior to the end date of a declared disaster, or after a declared disaster with no comments addressing the post-disaster condition of the property from the appraiser, a 1004D with photos will be required to recertify the value/condition of the subject property. Back to Top 04.03.2015 116 Conventional Underwriting Guidelines | Jumbos Power of Attorney Subject to the restrictions and requirements listed below, MiMutual will allow the use of a Power of Attorney (POA) to execute the security instrument, note and other closing documents on behalf of the borrower(s). Requirements POA to be recorded along with security instrument in those states requiring recordation. The person(s) name(s) granting the power of attorney must match the name on the security instrument. The POA must be valid at the time the affected loan documents were signed. The POA must be notarized and unless otherwise required by applicable law, must reference the address of the subject property. Only relatives (as defined by FNMA), fiancé, fiancée or domestic partners of the borrower may be named to act as an attorney-in-fact. Restrictions on the Use of a Power of Attorney Except as required by applicable law, the following restrictions apply: Borrower(s) must sign at least the initial or final 1003. POAs not allowed on Cash Out transactions. POAs not allowed on Texas Section 50 (a)(6) transactions. Title Requirements Title to the subject property must not contain an unacceptable title impediment, including unpaid real estate taxes and/or survey exceptions. If surveys are not commonly required in a particular jurisdiction, an ALTA 9 Endorsement must be provided. If it is not customary in a particular area to supply either the survey or an endorsement, the title policy must not have a survey exception. Back to Top 04.03.2015 117 Conventional Underwriting Guidelines | Automated Underwriting System Automated Underwriting System Approve/Eligible Risk Classification If the AUS rates the mortgage loan application as an Approve/Eligible, based on the analysis of the credit, capacity to repay, and certain other loan characteristics, the loan is eligible for MiMutual underwriting provided: The data entered into the AUS is true, complete, properly documented, and accurate; and The entire loan package meets all other conventional requirements (except for those specifically not required because the loan was evaluated by an AUS). Approve/Ineligible Risk Classification Loans that receive a recommendation of "Approve/Ineligible" are not eligible for approval. The broker will need to correct the issue(s) that caused the loan to be ineligible and resubmit the loan to attempt to obtain an "Approve/Eligible" recommendation (such as when a mortgage amount exceeds statutory limits, debt-toincome ratios, etc.) System Overrides and Manual Downgrades A system override and/or manual downgrade of an "Approve/Eligible" to a "Refer" classification may be required if a particular loan application variable is revealed during loan processing. MiMutual will not manually approve the loan. MiMutual is required to manually downgrade the loan to a "Refer" under any of the following conditions: Previous Mortgage Foreclosure When a borrower whose previous residence or other real property was foreclosed on or has given a deedin-lieu of foreclosure within the previous seven years, but it is not reflected on the credit report or considered in the AUS analysis. Delinquent Federal Debt If the borrower, as revealed by public records and/or credit information that may appear on title or elsewhere in the loan file, has delinquent Federal debt (such as a Tax lien) that is not considered in the AUS analysis. Upfront Disclosure Policy At the time of loan submission MiMutual requires evidence that initial disclosures were delivered to the borrower within compliance. The date indicated on the disclosures must reflect they were prepared / delivered in compliant timeframes. The broker must submit copies of all federal, state and local disclosures which will be monitored on every transaction. MiMutual complies with federal, state and local policies and procedures such as Fair Housing, ECOA, SAFE ACT, RESPA, HVCC, MDIA, etc. Back to Top 04.03.2015 118 Conventional Underwriting Guidelines | Underwriting Status/Decisions Underwriting Status/Decisions Pre-Qualification 1003 has been uploaded or loan has been locked (no underwriting package had been submitted Incomplete Insufficient documentation was submitted for the loan file to be submitted to underwriting. Submitted Loan package has been received, 1003 has been uploaded, and loan has been submitted to an underwriter. Suspended Crucial documentation was missing from the submission for the underwriter to render a sound decision. Approved with Conditions Underwriter has approved the loan with conditions which need to be met before the loan is “Clear to Close”. Withdrawn Loan file was withdrawn by the borrower or the broker. Declined A loan is declined only after all alternatives are explored. MiMutual may make recommendations or offer a counter proposal regarding the terms and conditions required for loan approval. Clear to Close All prior to closing conditions have been met and cleared by the underwriter and loan is ready to close. All “at closing” or “prior to funding” conditions must be forwarded to MiMutual prior to funding for underwriter approval, or with the closed loan package as noted on the MiMutual Underwriting Report under “Conditions to be cleared at Closing”. Back to Top 04.03.2015 119
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